big picture vixy moved massively before 2017. It has been sleeping since then. so the question is : why was there great interest in vixy before 2017, and now there is no interest?
But that's when it has already skyrocketed up and the term structure has flipped because the market thinks that is when its going to drop again. I.E. you've missed out on most of the upside probably and could very well lose a ton in a few days.
You can easily do a backtest. Point of entry when vix structure flips, there's still some room to run. Most of the time, you should short vix instead. Such a strategy would bring you Sharpe of 0.9 with 0 correlation to broad markets.
Thanks sef88! So are you saying that shorting the VIX (I assume you mean shorting VIXY) when the structure flips would give you a sharpe of 0.9 with 0 correlation to broad market? Or buying it? If its shorting it that gets those (it sounds like) very impressive results why would you buy it at that time? Thanks!!!
Short VIX when at contango (90+% of time) and long vix at backwardation. Can do a simple comparison of spot vs future. Or do a regression across the futures to get the slope. Long svxy and Long vxx more efficient because you can avoid borrowing fee. But match the leverage in position sizing. I would suggest a constant risk capital i.e. so that you can take off some money when VIX is at crazy level and scale down the position as the strategy starts giving back profits. It's a fat tail, high kurtosis strategy; so use fix capital and dont compound it. Scale up the strategy relative to your long only beta portfolio as a potential hedge. 0.9 as a standalone is not impressive but as an uncorrelated return stream, it adds tremendous value. Lots of lingos here but hope it helps.
Damn sef88, thanks so much. Got to study it more, lingo and all, be back in touch! By the way, what program, etc. do you use to backtest this? And underlying and what not as well, I want to try and replicate what you've tested. Thanks!!!
I backtest using python. And fully automated the execution too using the tech stack IB gateway - Python - Ubuntu. Just read up anything written by Robert Carver and Ernest Chan and you will uncover gems along the way. Have fun.
What??? The last move from low 20s to almost 40 that took place just a month ago WAS the smallest of market pull backs and vixy moved nearly 100% The amount of fear that could enter this market after just a single 5% drop would have most in awe. This market is literally 999999% complacent at the moment with zero thoughts of a pullback so even the smallest of market sell offs will spike the vix and move VIXY by a vast amount.