After reading this post, I’ve realized that my trading strategy was built on an erroneous understanding of the VIX products such as VXX and UVXY. It’s actually not the daily roll that causes the decay on these ETFs, but the normal convergence of the Futures price towards the spot price of the underlying instrument as we approach maturity. Although the contango measure is heavily correlated to this movement, it is an incomplete picture and I will need to conduct more research and backtesting.
The points that I will need to answer for myself are:
- Determining the relationship between the Contango of VIX Spot versus F1 and F2
- The acceleration of the term structures shift: either upwards or downwards
- How the implied volatility and realized volatility of VIX, VVIX, relates to the term structure of the Futures, especially to F1 and F2
- Calculating greeks for the futures, specifically Theta, Delta, Gamma, and Vega
Quick application of this new knowledge, I’ve decided to revisit my signal and back test on two new ones.
Spot VIX/F1 + F1/F2 < 1.9
Backtest Summary| Performance Measure | Value |
|---|
| Annual Return | 0.59 | | Annual Volatility | 0.3 | | Sharp Ratio | 1.72 | | Max Drawdown | -0.3 | | Alpha | 0.41 | | Beta | 0.69 | /* Here you can add custom CSS for the current table */ /* Lean more about CSS: https://en.wikipedia.org/wiki/Cascading_Style_Sheets */ /* To prevent the use of styles to other tables use "#supsystic-table-1" as a base selector for example: #supsystic-table-1 { ... } #supsystic-table-1 tbody { ... } #supsystic-table-1 tbody tr { ... } */ |
Worst Drawdown Periods| Rank | Drawdown in % | Peak Date | Valley Date | Recovery Date | Duration |
|---|
| 1 | -0.2976 | 04-20-2010 | 07-16-2010 | 09/15/2010 | 107 | | 2 | -0.2283 | 08-05-2013 | 10-23-2013 | 05/30/2014 | 215 | | 3 | -0.2201 | 11-02-2015 | 02-26-2016 | 04/27/2016 | 128 | | 4 | -0.192 | 05-29-2012 | 06-13-2012 | 07/02/2012 | 25 | | 5 | -0.1914 | 02-17-2011 | 03-28-2011 | 04/27/2011 | 50 | /* Here you can add custom CSS for the current table */ /* Lean more about CSS: https://en.wikipedia.org/wiki/Cascading_Style_Sheets */ /* To prevent the use of styles to other tables use "#supsystic-table-1" as a base selector for example: #supsystic-table-1 { ... } #supsystic-table-1 tbody { ... } #supsystic-table-1 tbody tr { ... } */ |
Stress Events| Stress Events | Mean | Min | Max |
|---|
| US downgrade/European Debt Crisis | 0 | 0 | 0 |
| Fukushima | 0.0042 | -0.0162 | 0.0244 |
| EZB IR Event | 0.0008 | -0.0225 | 0.0295 |
| 2009Q1 | 0 | 0 | 0 |
| 2009Q2 | 0 | 0 | 0 |
| Flash Crash | -0.0186 | -0.0742 | 0 |
| April 2014 | -0.0011 | -0.0545 | 0.0319 |
| October 2014 | 0.0001 | 0 | 0.0025 |
| Fall 2015 | -0.0007 | -0.0241 | 0.012 |
| GFC Crash | 0 | 0 | 0 |
| Recovery | 0.0026 | -0.1243 | 0.1032 |
| New Normal | 0.0015 | -0.0911 | 0.066 |
/* Here you can add custom CSS for the current table */ /* Lean more about CSS: https://en.wikipedia.org/wiki/Cascading_Style_Sheets */ /* To prevent the use of styles to other tables use "#supsystic-table-1" as a base selector for example: #supsystic-table-1 { ... } #supsystic-table-1 tbody { ... } #supsystic-table-1 tbody tr { ... } */
Spot VIX/F1 < 1.01
Backtest Summary| Performance Measure | Value |
|---|
| Annual Return | 0.8 | | Annual Volatility | 0.43 | | Sharp Ratio | 1.57 | | Max Drawdown | -0.55 | | Alpha | 0.45 | | Beta | 1.69 | /* Here you can add custom CSS for the current table */ /* Lean more about CSS: https://en.wikipedia.org/wiki/Cascading_Style_Sheets */ /* To prevent the use of styles to other tables use "#supsystic-table-1" as a base selector for example: #supsystic-table-1 { ... } #supsystic-table-1 tbody { ... } #supsystic-table-1 tbody tr { ... } */ |
Worst Drawdown Periods| Rank | Drawdown in % | Peak Date | Valley Date | Recovery Date | Duration |
|---|
| 1 | -0.5539 | 02-14-2011 | 10-03-2011 | 03/26/2012 | 291 | | 2 | -0.3538 | 11-02-2015 | 02-11-2016 | 05/27/2016 | 150 | | 3 | -0.3327 | 04-20-2010 | 06-09-2010 | 09/13/2010 | 105 | | 4 | -0.2579 | 02-13-2009 | 03-20-2009 | 05/08/2009 | 61 | | 5 | -0.2528 | 03-26-2012 | 06-01-2012 | 06/20/2012 | 63 | /* Here you can add custom CSS for the current table */ /* Lean more about CSS: https://en.wikipedia.org/wiki/Cascading_Style_Sheets */ /* To prevent the use of styles to other tables use "#supsystic-table-1" as a base selector for example: #supsystic-table-1 { ... } #supsystic-table-1 tbody { ... } #supsystic-table-1 tbody tr { ... } */ |
Stress Events| Stress Events | Mean | Min | Max |
|---|
| US downgrade/European Debt Crisis | -0.0176 | -0.2144 | 0.0019 |
| Fukushima | 0.0043 | -0.1271 | 0.086 |
| EZB IR Event | 0.0007 | -0.0201 | 0.0263 |
| 2009Q1 | 0.0021 | -0.0459 | 0.0452 |
| 2009Q2 | 0.0046 | -0.0813 | 0.0845 |
| Flash Crash | -0.0186 | -0.0742 | 0 |
| April 2014 | 0.0021 | -0.0501 | 0.0349 |
| October 2014 | 0.0046 | -0.0715 | 0.0733 |
| Fall 2015 | -0.0001 | -0.0769 | 0.1076 |
| GFC Crash | -0.0022 | -0.0813 | 0.0845 |
| Recovery | 0.0031 | -0.2144 | 0.126 |
| New Normal | 0.0026 | -0.1142 | 0.1076 |
/* Here you can add custom CSS for the current table */ /* Lean more about CSS: https://en.wikipedia.org/wiki/Cascading_Style_Sheets */ /* To prevent the use of styles to other tables use "#supsystic-table-1" as a base selector for example: #supsystic-table-1 { ... } #supsystic-table-1 tbody { ... } #supsystic-table-1 tbody tr { ... } */
