Our Strategy Trading ZIV and VXZ (Mid-Term VIX)

This is a test of our strategy, trading ZIV (short volatility) and VXZ (long volatility), since mid-2004.

The concepts behind our strategy are complex, but following our strategy is simple. We average less than one trade a week. Subscribers receive each day’s signal prior to the market open and enter orders at any point in the day for automatic execution at the close using a market-on-close (MOC) order. To receive daily updates to this strategy, subscribe for as little as $1 a day.

Read about test assumptions.

This is a very aggressive strategy in terms of risk and potential reward, and should be treated as such. Protective stops are not employed. For an even more volatile approach, see this test trading the short-term VIX ETPs XIV and VXX.

Across all metrics, the strategy has been a significant improvement over buying & holding ZIV, but most importantly, the strategy has done very well managing portfolio drawdowns (losses). This is clear not simply from the reduction in max drawdown, but also from the significantly improved Ulcer Performance Index.

The Ulcer Performance Index is a valuable statistic that measures a strategy’s return relative to the length and severity of its losses.

A “drawdown curve” shows the percentage a portfolio was down at any given point relative to the portfolio’s previous peak value. A reading of -20% would indicate the portfolio was down 20% from its previous peak. A reading of 0% would indicate the portfolio hit an all time high on that day.

Note how the strategy has significantly reduced the worst of the drawdowns that have accompanied ZIV.