Hedge with the VIX/VXV - Need Help

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Hedge with the VIX/VXV - Need Help

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Seeking Help Using Data Mean Reversion Stat Arb

This simple algorithm that trades the volatility. It calcuales the ratio between the 30 day to the 90 days volatility indexes and go long/short on SPY with some TLT hedging.
The logic of the approach: Usually in non fear periods, the 90 day volatility (VXV) is more costly than the 30 days volatility index (VIX) because we pay primium for having index for longer period. But in downtruns the 30 day may be priced with an increased primium (as investors buy short term shorts due to immidiate fear).

Read more here:
http://investingwithoptions.com/blog/2014/12/17/how-to-trade-the-vix-vxv-indicator/

Caution:

The beta is low which is great
In daily trade I got good results but those turned horrible in minue mode !
I couldnt test it in prior to 2012 due to lack of fetcher data.
Mid 2013-mid2014 weren't great and I could mitigate it and have great gains only by sensing the market sentiment using moving average of spy , but this increased my Beta to a quantopian non acceptable figures.

I am still trying to finalize the appraoch and how to trade , I may got it all wrong .... need help to continue the algo.

Thanks,

3 responses

Hi Joe,

What exactly do you need help with?

To see how if anyone has ideas how to improve / resolve items 2 and 4 above

Regarding item 2: it's no surprise that this doesn't really work at the minute level. VIX and VXV both track volatility at the daily level over the last 30/90 days. This implies movements that aren't really meaningful at the minute level, i.e. noise. To paraphrase you, the signal you're looking for is "periods of fear," which is based on investor sentiment. But does the bearish/bullishness of investors really change significantly at the minute level? I don't think it does. I think that VXV and VIX movements at the minute level are basically noise -- as such, you get bad results.

On the other hand, bearish/bullishness of investors does change significantly at the daily level.

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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.