VIX Trading Strategies in May

We’ve tested 23 simple strategies for trading VIX ETPs on this blog (separate and unrelated to our own strategy). And while I can’t speak for all traders, based on all of my readings both academic and in the blogosphere, the strategies we’ve tested are broadly representative of how the vast majority of traders are timing these products.

Most of these strategies turned in solid performances in May on the back of yet another strong month for inverse VIX ETPs like XIV and ZIV. Below I’ve shown the May results of the 23 strategies we’ve blogged about previously, trading the short-term VIX ETPs XIV and VXX. Read about test assumptions or get help following these strategies.

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See the end of this post for links to all of the strategies included in this report.

There was a fairly consistent premium across the VIX complex in May (between historical vol, various measures of implied vol, and VIX futures). Most of these strategies key off of comparing some variation of those data points, hence the reason why most of these strategies maintained a short VIX position throughout the month. At the moment, all but 3 of the 23 strategies are short the VIX.

There will be a significant uptick in volatility at some point (perhaps tomorrow or perhaps months from now), and many of these strategies will almost certainly get caught trading the wrong direction for some length of time, but until then, it’s useful to remember that low vol regimes like these can continue for far longer than sanity would expect.

XIV and VXX are of course not the only show in town. Below I’ve rerun the same tests, this time applying each strategy to the less popular (or is it “underutilized”?) mid-term VIX ETPs ZIV and VXZ (click to zoom).

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Note that when any of these strategies signal new trades, we include an alert on the daily report sent to subscribers. This is completely unrelated to our own strategy; it just serves to add a little color to our daily report and allows subscribers to see what other quantitative strategies are saying about the market.

Good Trading,
Volatility Made Simple


Stategies included in this report: First vs Second Month Futures, VIX vs Front Month Futures, VIX vs 1-Month Constant Maturity, VIX vs VXV Indices, V&M’s VIX:VXV Ratio, TM’s RSI(2)DFTB’s StDev Strategy, DFTB’s Spread Strategy, DDN’s Momentum Rotation, DDN’s VRP Strategy, 10/100-Day MA Crossovers, TWP’s Quadratic Fit, NAS’s VIX Futures Momentum, S&P 500 50/200-Day Crossovers, Brute Force Optimized VRP, LI’s Bollinger Band Strategy, LI’s SMA Crossovers, Evolution Capital Strategy, TTO’s VRP Strategy, MS’s Mean-Reversion, Macro Investor Strategy, QT’s VXV:VXMT Strategy, TTO’s Optimized VRP

Posted in Real-Time Analysis.