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Thread for XIV/VXX pair discussion

#1

Any ideas is welcome.
But please don’t tell me the bullshit without any evidence. Something like, “it means nothing”. “It will not work.”

How to control the volatility trading risk?

  1. Timing optimization
  2. Position control
  3. Hedging
    4…
#3
  1. Contango/backwardation
    2.VRP
    3.VXST
    4.spx call/put ratio

Anything else is speculation.

Risk:
1.overnight gap risk
2.event risk
3.weekend effect
4. % allocation

#4

VRP is so popular.
There are tons of VRP strategies. I am skeptical about the maxim DD when the worst scenario happens. So far, I have tests a couple of strategies. None can assure > 100% annual return with DD% < 20%.
Will keep trying.

#5

VRP will only work if there is a trend. VRP is prob the worst indicator in 2017. There is no trend other than vix going down this yr. so if u follow strictly on VRP it will tell you to Long vix after vix Spike 2 days, then it crashes back down after a day.

#6

Very true! Very upset!

#7

Agree with @VixTrader, VRP is probably THE macro trend indicator for vol strategies, but has plenty of difficulties with micro trends. Lousy during Brexit, for example, just as VixTrader says, VRP strategies were short and went down with the Brexit vote and lost more by going long vol in the quick recovery. Careful money management and trade management can help (some), hedging can help (more). Discretionary event management (for a simple approach: getting out of vol trades going into high uncertainty events like Brexit or POTUS election) can help too. If it were easy to reduce MDD with high CAGR, we’d all be rich already.

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