Q3 2016 Strategy Report - Volatility Trading Strategies

Updated: Dec 6, 2018

VTS Tactical Volatility Strategy:  (volatility products, XIV, VXX)

After suffering that unfortunate 20% drawdown in June we very quickly recovered from it and then went well beyond it earning over 60% this past quarter.  The key to our success in the last three months was the same as it’s always been since we launched the strategy way back when, and that is avoiding the bad trades.  As they say everybody is a genius in a bull market, and that’s especially true with volatility products.  It’s actually very easy to make huge profits trading the XIV when things go well.  You just trade aggressively, follow the VIX Futures Term Structure, and if it remains in contango  (an upward sloping curve)  for a while and the markets keep going up you’ll make a big profit.

Easy right?

But the trick is to not give it all back when markets go the other way, which of course eventually they always do.  Statistics show that roughly 90% of options and volatility traders will actually lose money in the long run, and it’s not because they can’t find profitable trades.  Those are easy to find.  It’s the “give back” that’s causing the majority of traders to lose money.

There were a couple more major drawdown days this past quarter that we successfully avoided.  We’ve now avoided 29 of the largest 32 drawdown days since the XIV launched at the end of 2010.  Click here to see the full article showing just how successful we are at anticipating when the markets are setting up for a fall.  Our strategy is very conservative in nature and it’s for that reason that we will be here for many years to come bringing consistent profit to our subscribers.  We’re not short term traders, we’re long term investors and our results are just as good this year as in any other year in the past.

VTS Tactical Balanced Strategy:  (traditional assets, stocks, bonds, gold)

Looking at the stock market these past 3 months it’s almost enough to make you fall asleep.  Boring…  As a result our Tactical Balanced Strategy spent much of the quarter allocated to stocks and making a nice little profit for the strategy.  That brings our 2016 year to date returns up to 24.3%, which is over 3 times what the stock market has earned.

My guess is as we approach the elections as well as another Fed meeting in the next few months market volatility will pick up some and we will have a chance to showcase our risk management and hopefully move into a few more bonds and gold trades.  That’s the real strength of the strategy.  We can capture stock returns when the markets cooperate, but we want nothing to do with stocks when things go off the rails.  When that will be nobody knows, but my gut tells me it won’t all be sunshine and happy times in the next couple years.

Total Portfolio Solution:  (combining both of our winning strategies)

Of course we strongly encourage people to consider the advantages of more diversification in their retirement funds and to take part in both of our successful strategies at once.  Year to date the Total Portfolio Solution has earned over 35% with a maximum drawdown of less than 5%.  Nobody including myself knows what the future holds.  So spread out the risk, diversify your investments, remain hedged, focus on risk management, and we invite you to consider a subscription to the Total Portfolio Solution.

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