Last week we added a new chart to the VIX Futures Data page which plots the daily closing value of the VXX Weekly Roll Yield, WRY, against its 10-day simple moving average.
This new chart provides traders with simple entry and exit signals that can be used to measure the momentum of VXX, UVXY, XIV, and SVXY.
There are two "halves" of this trading strategy:
1) being short VXX/UVXY (or long XIV/SVXY) whenever the WRY is below its moving average, and
2) being long VXX/UVXY (or short XIV) whenever the WRY is above its moving average.
Below is the current chart.
I've backtested the strategies separately for "short VXX only" and "long VXX only" from the inception of VXX (1/30/2009) through 12/10/2013. Decision points are made using the day's closing data (individual trades in the analysis can be viewed here).
For short VXX only:
- # of Gains: 59
- # of Losses: 47
- Avg Return: +4.1%
- Max Gain: +40.4%
- Max Loss: -19.2%
- Sum of Gains & Losses: +438.6%
- # of Gains: 32
- # of Losses: 74
- Avg Return: -0.8%
- Max Gain: +60.6%
- Max Loss: -17.4%
- Sum of Gains & Losses: -81.9%
---> Sum of all gains and losses: +356.7%
Below are the histograms for each of the strategies, grouping the number of trades that occurred in various blocks of percentage points.
The biggest block of returns for trades using the short VXX strategy is between -4% and 0%, which had 27 occurrences.
The biggest block of returns using the long VXX strategy is also between -4% and 0, which had 37 occurrences. Most of these trades experience gains in the first couple days but end up in a loss as VIX futures revert back to their mean.
The Weekly Roll Yield chart is available to all Trading Volatility members. For more information on subscriptions see our subscribe page.
Hypothetical and Simulated Performance Disclaimer
Additional performance differences in backtests arise from the methodology of using the 4:00pm ET closing values for XIV, VXX, and ZIV as an approximated trade prices for indicators that require VIX and VIX futures to settle at 4:15pm ET.