Equity returns following extreme VIX & WVF movements: collaboration algo

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Equity returns following extreme VIX & WVF movements: collaboration algo

posted Mar 15, 2015

Hi guys,

I spend some time working on an algorithm that buys SPY or SPXL based on the combination of extreme movements in the VIX and the WVF. The VIX by itself is not such a good predictor but combine with the WVF (aka The Williams’ VIX Fix is an indicator meant to roughly approximate the VIX. It can be useful in situations where there is no implied volatility index for the instrument we want to trade. The WVF is simply a measure of the distance between today’s close and the 22-day highest close)

QUSMA has a nice article about that in tow parts: part 2: http://qusma.com/2013/12/06/equity-returns-following-extreme-vix-wvf-movements-part-2/

The source of the VIX data I get from the cboe.com site.
The rules I derived from the behaviour of the curves are:

ENTER: 2 days after the VIX or WVF hit a 98 perc rank and one of the 2 hit a 99 perc rank
EXIT: 3 days after the moment that when the VIX or WVF crosses the 125 days EMA average after it has hit a low of the 10th perc rank

Entering and exiting with a delay is essential and now I found that I'll try to implement that in other volatility strategies.

Anyway, this is an open invitation to collaborate. If we can find ways to limit the DD I think we are on to something. Especially as a complementary strategy to a strategy that does not want to trade during times of high volatility.

The first backtest is with the EMA as part of the exit, the next one is based on the SMA

Best, Peter

4 responses

with SMA, a bit improved set of metrics

one using SPY instead of SPXL and a bit longer sell delay

Theodore Janney Jr

Peter,

I've made some changes, mostly based off what I saw in the Vixscore and the Wvfscore. I'm not a programmer, so the code is probably a mess and I didn't update any of the notes. This is the SPXL algorithm. I'm barely starting on the SPY.

Ted

thanks Ted, I'll look at it, great that you managed to get a lower volatility and DD, good observations. I have been playing with other vol strategies and I'll try to marry them and see if we can get it more stable. The first thing I want to get rid off is the hard coded numbers, I'll try to move it to a zscore so that they become more dynamic... Thanks for looking at it

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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.

In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.