Th U.S. Stock market experienced a wild October, with the S&P 500 falling 9.8% from its peak on September 19 to a low on October 15, followed by a two week rally back to all-time highs. This extreme move was matched with a +170% gain in VIX as it rose to a three-year high of 31.06. Highlighting the swiftness of this move, VIX gained more than 10% on three consecutive days for the second time ever. Then, just as swiftly, it retreated with an unprecedented decline of -10% on three consecutive days.
Our
Daily Bias indicators read these moves well and produced two great trades. A change to a positive VXX Bias signaled a buy in VXX on September 18 and a change to a negative VXX Bias on October 21 signaled a VXX sell for a gain of 21%. The move to a negative VXX Bias on 10/21 signaled time to move back to short volatility by buying XIV, a trade that is +7% as of October 31. Both of these trades helped us continue our quest to once again
outperform the market this year.
Looking at year-to-date performance of the two VXX Bias strategies through October 31:
- Negative VXX Bias strategy:
+21% vs +2% for XIV
- Positive VXX Bias strategy:
-5% vs -28% for VXX
Extending the performance time frame of the Negative VXX Bias strategy back to 2012:
- Negative VXX Bias strategy:
+566% vs +411% for XIV
Turning attention to ZIV, the Positive ZIV Bias strategy was +1.3% in October bringing the YTD total to +4.8%.
Over the longer time frame back through 2011:
- Positive ZIV Bias strategy: +391% vs 256% for ZIV.
Performance Data files:
- VXX Bias: 2006,
2007,
2008,
2009,
2010,
2011,
2012,
2013,
2014
-
2012-2014 (multi-year)
- ZIV Bias: 2011-2014 (multi-year)
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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.
-JW
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