VIX Trading Signals
These strategies have an additional risk over usual trading due to the structure of traded products, underlying indices, and limited historical data. They are for experienced traders. Past performance is not a guarantee of future returns and risks.
Signals are sent every week-end. They follow two models based on
technical factors: Hedged Model and Trend Model. They
trade volatility only on the short side, using the natural bias of
VIX futures term structure. The service started in December 2013.
Model rules have been revised twice. The last revision was in
December 2015. Until February 2018, Signals have been explicit buy
and sell signals of ETNs and ETFs, among them XIV, SVXY and ZIV.
Then, two noticeable events occurred: after the exceptional VIX
spike of 2/5/2018 afternoon, XIV has been terminated and SVXY
leveraging factor has been changed. Both products have lost more
than 85% overnight. Subscribers following strictly the signals
have avoided XIV/SVXY blow-out: the Trend Model sold XIV on 1/22,
and the Hedged Model on 2/5 at opening.
After these events, the service has been adapted to offer more flexibility about products and risk management. Basically, the 2 models of VIX Trading Signals have a small number of states. Holdings correspond to these states. An implementation is a relation states/holdings. It sounds abstract, but it will be clear with explanations and examples.
The Hedged Model is binary, it has only two states:
- INVESTED (previously 50% long SVXY, 50% long TMF, rebalanced weekly)
The Trend Model has 5 states:
- SHORT VOLATILITY AGGRESSIVE (previously 1 position, long SVXY)
- SHORT VOLATILITY MODERATE (previously long ZIV)
- LONG T-BONDS (previously long TMF)
- SHORT T-BONDS (previously long TMV)
Adding this abstract level of “states”
allows to adapt the strategy to one’s risk profile, market
conditions, existing (and possibly changing or disappearing)
Examples of possible variations in implementation:
- One may decide that SHORT VOLATILITY AGGRESSIVE and SHORT VOLATILITY MODERATE correspond to the same holding ZIV because it suits one’s risk tolerance. MODERATE and AGGRESSIVE may possibly be nuanced with position size.
- One may decide that LONG T-BONDS corresponds to long UBT or long TLT instead of previously long TMF, because a 3x leveraged bond ETF in a rising rate environment has a significant negative bias.
- One may decide to decrease position sizes for any reasons: short volatility positions when VIX is extremely low (which implies a higher risk), or bond positions when rates are rising sharply. Backtesting is not a silver bullet, especially when some market conditions have never been met in historical data.
Below are backtests of a few implementations from 5/1/2009 to 2/27/2018. Transaction costs are not included. Synthetic prices may be used before product inception. Charts by portfolio123
Please note that short selling may
result in unlimited losses and we don’t recommend it for
individual investors. The cost of selling short (share borrowing
rate, margin cost) is not taken into account. Margin is not used
on rebalancing days (leverage reset to 1), but it is necessary
Hedged Model with INVESTED = 50% long UBT + 50% long ZIV:
Trend Model with SHORT VOLATILITY AGGRESSIVE= short VXX, SHORT VOLATILITY MODERATE= short VXZ, LONG T-BONDS= short TBT, SHORT T-BONDS= short UBT:
This backtest looks amazing, but this
is an extremely risky “full short” implementation. We don’t
recommend it for individual investors. The cost of selling short
(share borrowing rate, margin cost) is not taken into account.
Margin is not used on rebalancing days (leverage reset to 1), but
it is necessary intra-week.
Trend Model with SHORT VOLATILITY AGGRESSIVE= SHORT VOLATILITY MODERATE= long ZIV, LONG T-BONDS= long UBT, SHORT T-BONDS= long TBT:
Other variants are possible. Backtests with SVXY using the new leveraging factor are not possible at this time. It is like a brand new product with no existing equivalent and no historical synthetic prices yet.
Click the orange button below to subscribe.
VIX Trading Signals: 47 USD / month*.
Information is sent by email every week. It contains the holdings for the week. This is a model portfolio for informational purposes. It is not a recommendation to buy or sell securities. We provide an opinion about the market. Every subscriber is free to use it in any way for individual purpose, except disseminating included information. You are responsible for all consequences of using this information. Trading is risky. We are not a RIA and cannot provide personal advice. If you have a doubt, please consult a registered advisor.
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