This strategy was presented in the Don’t Fear the Bear blog, which currently does not exist. The strategy belongs to the Averaged Contango group and analyzes the ratio of F1 futures/VIX. The current value of the indicator was compared with the average over 20 trading days. We believe that for analysis, the ratio of F2/F1 Futures is more suitable because if we use F1 and VIX, the distance to expiration will constantly change (the expiration date of F1 gets closer to the current date each day). Instead, it’s better to use the ratio of F2/F1 or something similar, as in this case, the length of the distance is constant.
The rest of the strategy’s logic remains common for all contango strategies – collecting returns from movement along the futures curve. The market regime and the direction of the position are determined by comparing the current value of contango and its moving average. Here, too, there is a slight change – we took 21 trading days as the average number of trading days in a month.
Strategy Rules
Calculate contango = F2 futures / F1 futures – 1. Average the contango over 21 days. Short VXX on close if averaged contango > 5%, long VXX if averaged contango < -5%. No position otherwise.
Strategy Performance
Test period: 2010 – 15 Dec 2023. Costs (brokerage commissions, slippage and borrow cost) are not included.
| Averaged Strategy | Benchmark: Short VXX | Benchmark: SPY | |
| Full Return | 4 411% | 5 850% | 549% |
| Annualized return | 31% | 34% | 12.95% |
| Max DD | -80% | -92% | -34% |
| Sharpe ratio | 0.5 | 0.42 | 0.70 |
