VIX Trading Strategies Take a Tumble in July

We’ve tested 16 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 trading these products.

Most of these simple strategies took a tumble in July as a result of big losses in inverse VIX ETPs. Below I’ve shown the July and YTD results of the 16 strategies we’ve blogged about previously, trading XIV and VXX (read about test assumptions). For comparison, buying and holding XIV is also included in grey.

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20140801.Graph-ST

Stategies included: 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 Crossover, 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

As I’ve noted in the past, most of these strategies have lagged YTD, mainly due to getting defensive at precisely the wrong time following volatility spikes earlier in the year. But as I’ve also noted in the past, I think the general concept of becoming defensive in the face of rising volatility is definitely still the smart play long-term.

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).

20140801.Table-MT     20140801.Graph-MT

Click to read more about all of the strategies covered in this report and to see Volatility Made Simple’s own elegant solution to the VIX ETP puzzle.

Note that when the strategies that we cover on our blog signal new trades, we include an alert on the daily report sent to subscribers. This is completely unrelated to our own strategy’s signal; it just serves to add a little color to the 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.