Doing data mining with volatility assets the computer suggests me to be short in UVXY. I saw the graph, and UVXY really has a decreasing trend. So, to simplify, I created a strategy that only opens a short UVXY position at the beginning.
Then I went once step ahead, and tried to rebalance UVXY once a target profit was achieved.
The question is: this cannot be traded live, right? I mean, it can, but I cannot expect to have this kind of return with so simple strategy, can I?. I know I have to pay some additional fee to be shorted, but there's no comparison with the backtested return.
For sure this was not tested in 2007/2008 crisis. I guess in those events UVXY blows up and my leverage position could be much more than 2. Is that the only risk? Because if that's the risk, it could be patched improving the money management.
I don't ignore the 54% drawdown and the high beta, but the long term trend is very clear.
I appreciate your thoughts.
Here's a version that doesn't allow to have a leverage above 0.8.
I tested with 0.8 instead of 1.0, because with the parameters set, I haven't reached a leverage equal one. It is just to have an idea of the behavior after a rebalance because of a high leverage.
As expected, beta and drawdown are still high.
Ok,
The trade here wins everytime. Seriously, it does, but the problem is that it could potentially spike anywhere from twenty to a hundred percent. That spike will absolutely kill you as far as your drawdown numbers go and if you hit a big enough spike, your broker may come in and forcibly sell your position, resulting in a massive loss.
Given that, it isn't really surprising that these strategies are often associated with the phrase "picking up pennies in front of a steamroller". With that having been said though, it doesn't mean that you can't trade the strategy; what it does mean is that you need to accept the eventual drawdown and understand the risks involved and how to minimize them. There are plenty of threads on here dedicated to investigating how to short volatility realibly and I'm sure you'll find plenty of help there.
Good luck,
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