We can not only use the existing values of volatility indices, futures, and various types of moving averages for trading volatility. A quite popular direction is predicting volatility using various models. Most often, various GARCH models are used for this, but in this strategy, a simpler method is applied.
This strategy was published in the Evolution Capital workpaper. It analyzes both the shape of the VIX futures curve at the moment and the dynamics of the F1 and F2 futures spread (yield from rolling).
Optimized version of the VIX vs VIX3M strategy (three-month volatility index). Short VXX if VIX/VIX3M less 0.92 and long if VIX/VIX3M > 1.08
The next strategy is based on the futures curve. It uses the ratio of VIX (short-term index – reflects the expected 30-day volatility) and VIX3M (medium-term index, indicating expected 3-month volatility) as a signal. An additional distinction from previous strategies of this class is that here we not only short VXX, but in some cases go long on it.
Another contango-class strategy for assessing the market state and profiting from the decay of long VIX futures instruments. In this strategy, we also use the shape of the futures curve as a signal. However, instead of comparing the market’s expected VIX value for a specific calendar date (futures), we use a combination of futures prices at a fixed distance in days from the current date.
