The Ultimate Volatility Strategy

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The Ultimate Volatility Strategy - XIV Assassin

edited Aug 17, 2017

Some people have been posting great XIV trading strategies, continually improving them, optimizing, adjusting this, adjusting that, using one indicator, then another, parking money in one instrument, then another instrument.
I've decided to consolidate all that knowledge into a single and ultimate XIV trading strategy that may be the simplest of them all. No optimization, no silly indicators, no parking money in some instruments, and in fact not doing anything but making money.
This strategy simply emulates a monkey who doesn't know what ta hell he is doing, he just buys XIV randomly and then desperately tries to sell it but doesn't know how.
Use it as a demonstration of how a monkey can make more money than people who over-optimize and spend their lives adjusting things, rather than buying themselves a monkey.

Edit: based on feedback, looks like you may need to setup some default stop-loss and profit-taking levels for your monkey. Or pick any random XIV strategy and continue optimizing it until it works.
Besides teasing, the point I'm trying to make is that XIV was one of the easiest stocks to trade so far and not many people were able to lose money on it. Even if they lost, they could start over and make profit again. At the same time, things can change at any moment and XIV can instantly become one of the most dangerous instruments, thus I just recommend researching it in detail to decide if this is something for you.
There is also a realistic algo problem shown here: that we're trying to optimize our strategies until we can fit our rules to work best with the past data, but the algo may not work thanks to our rules but thanks to the past market conditions and/or the nature of the instrument.

5 responses

Peter Bakker

Aug 17, 2017

The stop / buy levels, timing and such should also be determined by the monkey or do I need to buy multiple monkeys? Can this monkey multitask?

Blue Seahawk

Aug 17, 2017

fairly well-behaved monkey, try to address the early mayhem, 14k margin with 2.0 lev in apr 2011

Kory Hoang

Aug 17, 2017

Haha Kon Rad I appreciate this iteration of my algo! It does prove your point of XIV's tendency to rise most of the time. However, the monkey in your algo is smarter than you think. While it is true that you have removed my algo's timing mechanism with a random seed generator, you have left the take profit and stop loss intact (+25% and -3%). I actually have a buddy named David who trades XIV and his strategy is basically long XIV all the time. He then risk manages using stop losses and if/else statements, with no timing of buy/sell at all. David is actually doing better than me in terms of performance YTD.

Below is your algo with no TP/SL

Kon Rad

Aug 17, 2017

I see Kory. I just adjusted your algo like a monkey, without knowing what I'm doing :-)
And hey, monkeys can actually be pretty good with pressing a button for adding stop loss and profit taking orders. My broker provides default settings, or ability to set defaults for those. So you can set those up for your monkey.

On another hand, if I only spend a month optimizing it, I'd think I can reach even better results starting with this as a base algo. This one took only 30 minutes (plus testing), and it was the first Quantopian algo I actually learned how to alter.

And while any details can be argued, this still shows that sometimes we may be trying too hard because we know that something like XIV works great. But its the fact that XIV worked so great that allows us to have fun with algos that capitalize on it.

Kory Hoang

Aug 17, 2017

@Kon Rad, I actually want to thank you for your monkey algo. It is a great method for testing the viability of XIV trading, pretty much a Monte Carlo. In my mind, every random seed could represent a potential strategy for XIV. With proper risk-management, the monkey will likely survive. Without risk management, randomly buying and selling XIV doesn't seem to work. However, what your monkey algo has confirmed further for me is that when it comes to trading XIV, timing doesn't matter as much as risk-management. My friend's strategy beats mine without any timing component and this monkey algo has really proven that.

I am actually very interested in seeing what kind of results you would get when randomizing the stop loss. Can someone try it out? My theory is it will not be as easy as Kon Rad thinks.

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