Another ‘trendy’ strategy in VIX-related instruments. Here, the presence of a trend in Constant Maturity futures on VIX is analyzed. If the faster moving average is below the slower one, implied volatility is decreasing. In such a situation, we short VXX. Otherwise, we stay out of the market.
Constant Maturity (CM) – is the interpolation of prices by date between F1 and F2. CM is calculated using the following formulas:
l = F2 expiration date – current date
m = constant maturity date (we assume 30)
s = F1 expiration date – current date
Constant Maturity (CM) = F1price * (l – m) / (l – s) + F2price * (1 – (l – m) / (l – s))
Strategy Rules
Calculate 30-day VIX Futures Constant Maturity. Then 20-days and 10-days simple moving average of CM. If SMA(10) less then SMA(20) short VXX, no positions 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 | 393% | 5 850% | 549% |
| Annualized return | 10% | 34% | 12.95% |
| Max DD | -91% | -92% | -34% |
| Sharpe ratio | 0.19 | 0.42 | 0.70 |
