1) "WRY - 10SMA" Strategy
2) "Bias" Strategy for VXX & ZIV
1) "WRY - 10SMA" Strategy
Last month I introduced a strategy to enter and exit trades based on whether the Weekly Roll Yield (WRY) for VXX is above or below its 10-day moving average. It uses the chart from the VIX Futures Data page, shown below, to buy XIV (the inverse of VXX) when the WRY is less than its 10SMA (blue line is below the thin purple line), and buy VXX when the WRY is greater than its 10SMA (blue line is above the thin purple line).
1A) First, let's look at the performance of the "WRY < 10SMA" trade back to the inception of VXX in 2009 (data available here).
Cumulative Return Jan 30, 2009 - Dec 31, 2013
XIV: +1,691%
"WRY < 10SMA": +1,870%
*Note: Results assume that gains are reinvested; prior to inception of XIV the inverse daily return of VXX is used to calculate the daily closing price of XIV.
Focusing now on performance in 2013, you can see from the chart below that the "WRY < 10SMA" strategy under-performed a bit in a choppy market. One of the benefits of this strategy is that it helps to reduce drawdowns experienced by XIV and protect the portfolio in case the market sees a larger selloff, but it can come at the cost of missing out on "rebound gains" in an event-driven market. Hypothetical performance data available here.
Cumulative Return Jan 1, 2013 - Dec 31, 2013
XIV: +107%
"WRY < 10SMA": +86%
"WRY < 10SMA" Trade Summary, 2013
- # of Gains: 11
- # of Losses: 10
- Avg Return: +3.4%
- Max Gain: +27.3%
- Max Loss: -6.5%
Trade histogram of gains & losses for "WRY < 10SMA" in 2013:
1B) Next is the other half of the strategy, "WRY > 10SMA", in which VXX would be bought. As noted in my introductory post on this strategy, the gains obtained using this strategy in the early part of the trade are almost always gone by the time the WRY crosses back below the 10SMA. Because of this it makes sense to close trades early or skip this half of the trade altogether (hypothetical performance data available here).
"WRY > 10SMA" Trade Summary, 2013
- # of Gains: 6
- # of Losses: 13
- Avg Return: -2.2%
- Max Gain: +7.9%
- Max Loss: -11.5%
Trade histogram of gains & losses for "WRY > 10SMA" in 2013:
In my next post I'll cover the performance of the "Bias" strategies (from our Daily Forecasts) for both VXX and ZIV .
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Hypothetical and Simulated Performance Disclaimer
The results are based on simulated or hypothetical performance results that have certain inherent limitations. Unlike the results shown in an actual performance record, these results do not represent actual trading. Also, because these trades have not actually been executed, these results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated or hypothetical trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to these being shown. 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.
