In this strategy, we again short VXX. To assess the appropriateness of the short, we use Bollinger Bands. They represent the distance from the moving average in terms of standard deviations. It is assumed that the behavior of the instrument within the upper and lower Bollinger Bands is a random deviation from the average. If the price value moves away from the average by a large number of sigmas (standard deviations), we conclude that anomaly is observed for that instrument in the market.
For this strategy – construct Bollinger Bands over 20 days with a width of 1.4 sigmas. If VXX is below the upper boundary of the BB, the market is in its calm state. Crossing above this boundary is a signal to close positions.
Strategy Rules
Calculate Bollinger Bands for VXX over 20-day lookback. Use width 1.4 sigma. If VXX below middle – short VXX. If VXX above upper band – close position.
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 | 4 528% | 5 850% | 549% |
| Annualized return | 31% | 34% | 12.95% |
| Max DD | -69% | -92% | -34% |
| Sharpe ratio | 0.53 | 0.42 | 0.70 |
