Euan Sinclair's VXX/VXZ Strategy

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Euan Sinclair's VXX/VXZ Strategy

edited Dec 5, 2016

I attempted to replicate the implied-volatility term structure strategy that Euan Sinclair outlined in Volatility Trading (2e). He used VIX/VXV as an implied-volatility term structure (IVTS) and then specified weights on VXX and VXZ (see below). I attempted to replicate the strategy by borrowing Simon's code from (https://www.quantopian.com/posts/poor-mans-risk-premia-and-the-vix-term-structure). Since I am inexperienced with Quantopian, I was unable to have the backtest match the book's results. I suspect there might be a problem with the way I handled the rebalancing or position sizing (book said "We assume we start with $100 and continue to
reinvest all the money at our disposal." On a similar note, I would appreciate it if someone could also clarify why these specific weights were chosen instead of just using 1 as the threshold.

Weights
If IVTS<=.91, then -.6 VXX & .4 VXZ

If .91<IVTS<=.97, then -.32 VXX & .68 VXZ

If .97<IVTS<=1.05, then -.25 VXX & .75 VXZ

If IVTS>1.05, then -.1 VXX & .9 VXZ

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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.