This is also a trend-following strategy. The signal for opening a position is a combination of two moving averages of the same period on the VIX.
One of them is a simple moving average (i.e., the average value of the VIX over the last 10 days).
The other is an exponential moving average. The point is that the exponential moving average gives more weight to the most recent values. By comparing these two quantities, one can assess the direction of the trend – if the EMA is below the SMA, the VIX is decreasing, if it is above, it is the opposite.
The EMA is calculated using the formula:
k = 2 / (N + 1)
EMA = Price * k + EMA (previous day) * (1 – k).
Strategy rules
Calcluate 10-day VIX Exponential Moving Average and 10-day VIX Simple Moving Average. If EMA is below SMA – short VXX. If EMA is above SMA – long VXX.
Strategy Performance
Test period: 2010 – 15 Dec 2023. Costs (brokerage commissions, slippage and borrow costs) are not included.
| Averaged Strategy | Benchmark: Short VXX | Benchmark: SPY | |
| Full Return | 11 969% | 5 850% | 549% |
| Annualized return | 41% | 34% | 12.95% |
| Max DD | -83% | -92% | -34% |
| Sharpe ratio | 0.49 | 0.42 | 0.70 |
