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Pretty simple stock bond strategy using 3x levered ETF and added hedges using VIX options. Let me know what you guys think.
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Narendra Kulkarni
Hey Adrian,
I completely agree with you. Issue is how to you add a cheap long volatility component? I tried to add a long volatility component by buying cheap OTM VIX options. But its not “active” in the sense we always buy long volatility. If there was a signal then we could perhaps do better. DO you have any suggestions on now to add a long volatility component that does not have a large drag on the returns.
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Gv
Narendra Kulkarni You are probably aware of In-and-Out concept discussed on QC. I personally like Vladimir V1.3 version discussed in “Intersection of ROC Comparison using out day approach”. Link here. Algorithm tries to predict whether it is risky to be in market or not. It would be interesting to see if you can modify your VIX options hedging depending on the signal from V1.3.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Mark hatlan
I agree with all of that. Using spy puts and vx futures is where I would look first.
Years ago I created multiple VIX timing entries and exits for options, but they ended up not actually trading well due to the vix options following the vx futures. OTM SPY puts may be a better product to hedge with for a downturn. VX futures may trade at a premium when VIX is low, and trade at a discount when VIX is high, further eroding your call value and lessening the hedge.
However if direct volatility exposure is what you want then you have vix options, vx futures and vix etfs. But you may need a timer to switch between long and short volatility, as always long vx futures will erode to much capital. Have you tried vix straddles?
For the futures I'm currently looking at shorting vx and es futures together when vx futures peak, the vx downturn will come and assumption is that vx futures will drop more than es rises thereby showing a profit.
One way to make any long option cheaper is to sell a spread closer to the money. Yes you lose the requirement if it closes past your spread, but it makes the further out of the money option cheaper to buy outright. that may be something to try if you want to continue vix options, or maybe even too with spy options. For the spy options that would decrease the cost of the OTM puts.
Just some thoughts as I'm currently looking into different ways of hedging my own long positions more effectively.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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