VIX Selling Strategies

This series of posts will look into ways to systematically short the VIX via VIX Futures.

Strategy 1 - Sell and hold to expiry

Strategy 1a is simply to sell on the open of a new front month future, and close just before expiry.

Strategy is not good, as we can see there are years of choppy growth, and a drawdown can take several months to recover. The strategy owes it profits to the stellar years in 2016-2017.

A look at the opening price vs ending profit shows us that opening trades at higher prices are more likely to end up profitable. We can thus attempt to use a simple filter - sell only if price is >15. The results are shown below as Strategy 1b.

The equity curve is much smoother, but it has years of missing out (when open price is lower than 15 e.g. during the calm of 2017 which were the best years of selling VIX). Realistically, you wouldn't want a strategy that hardly trades.

Strategy 1c is a play on the autocorrelation structure of the returns. If losing months are usually followed by winning months, then we can enter after observing a loss on the hypothetical portfolio.

While it is overall positive, it fails to capitalize on the winning streaks of the strategy, and it does not filter out the losing months well enough, and so overall it's not good.

Conclusion of strategy series 1

The simple buy and hold (or rather, sell and hold) is not robust enough for a strategy, and we will have to investigate further.

 

2013-05 is the first expiry date obtained from CBOE and data before that to 2007 obtained from macroption.com