VIX Trading Strategies in November

We’ve tested 20 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 a strong performance for the month, making up for broad losses in October. Below I’ve shown the November and YTD results of the 20 strategies we’ve blogged about previously, trading XIV and VXX. Read about test assumptions or get help following these strategies.

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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

MarketSci’s Mean-Reversion was the top performer this month by a slim margin. The real standouts this year though have been the “VRP” strategies tested here and here with YTD returns of 66% and 108% respectively.

I would strongly caution however that when tracking as many different strategies as we track, trading vehicles as volatile as VIX ETPs, something is bound to appear to have the hot hand at any given moment. Whether or not this is a result of real predictive ability or just the luck of the draw is open to interpretation, but what I do know (and I’ve shown quantitatively here and here) is that chasing the most recent top performer is generally a bad idea.

The strategies that are leading the pack today very often find themselves at the back of the pack tomorrow. These VRP strategies are a good example of that. Despite their strong performance this year, both trailed buy & hold badly for all of 2012 and 2013. That’s why I always advocate for a more holistic approach that considers many of the different concepts we’ve discussed on this blog rather than marrying any one single idea.

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

Posted in Real-Time Analysis.