Q3 2014 Strategy Reports - Volatility Trading Strategies

Updated: Dec 6, 2018

As far as the actual number of trades we took the quarter was pretty normal.  However, the percent of days we were in trades was very low compared to the longer term average.  Most of the trades we were in and out within a day or two which demonstrates that there’s a lot more to trading these products than just buying the XIV when the VIX term structure is in contango.  I don’t attempt to predict where markets are going, but I will say this bull market feels a little long in the teeth.  It wouldn’t surprise me if we start seeing more separation among trade results between different methods of trading these volatility products.

There’s some nice work being done over at Volatility Made Simple that I think is worth checking out.  It’s interesting how they various trading methods through different market environments.  Now I will say as a general warning, don’t take those results too seriously.  They are just based on back tests that I’ve stated several times mean very little in the real world.  The ETF’s didn’t exist for those strategies to trade on, so whatever they claim to have happened before late 2010 is irrelevant.

I don’t imagine Volatility Trading Strategies will ever be on there.  Our system is entirely proprietary and we are markedly different than anything else they are presenting.  We also don’t put much stock in backtests which is what all of their data is based on.  But it’s still a good read once a month, and I always respect traders who are willing to put themselves out there and present data quantitatively.

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