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Using the Ratio between VXV and VIX we can calculate whether UVXY is in backwardation or contango.
Ratio = VXV/VIX
If Ratio < 0.923, then UVXY/VXX is in Contango, we should short the position
If Ratio > 0.923, then UVXY/VXX is in Backwardation, we should go long
Coming from Python, my C# skills are not up to par. I've got tested Python code (with numerous enhancements) that trades this strategy. Below is my feeble attempt to convert it to C# so that everyone can take advantage of it. I did not know how to pull the data from Quandl, so I left that part out.
I'd use VXX, but you can use UVXY for much greater profits, but drawdowns will be HIGH!
using System;
namespace QuantConnect.Algorithm
{
public class Backwardation : QCAlgorithm
{
// UVXY performs better with much higher drawdowns.
static string symbol = "VXX";
decimal ratio = 0;
// Add VXV and VIX data from Quandl or Yahoo here
// YAHOO/INDEX_VIX
// CBOE/VXV
//RollingWindow
//RollingWindow
public override void Initialize()
{
SetStartDate(2015, 2, 1);
SetEndDate(2015, 9, 9);
SetCash(100000);
AddSecurity(SecurityType.Equity, symbol, Resolution.Minute);
SetWarmup(TimeSpan.FromDays(5));
}
private DateTime last = DateTime.MinValue;
public void OnData(TradeBars data)
{
if (IsWarmingUp) return;
if (Time.Date != last.Date) {
last = Time;
// Calculate ratio of vix to vxv here
// ratio = vixdata/vxvdata;
// Once we have the ratio, we decide what to do
if (ratio < 0.923m) {
// A ratio under 0.923 indicates contango position
// sell short
if (Securities [symbol].Holdings.Quantity <= 0) {
SetHoldings(symbol, -1.5);
}
} else {
// A ratio over 0.923 indicates backwardation, go long
//buy
if (Securities [symbol].Holdings.Quantity >= 0) {
SetHoldings(symbol, 1.5);
}
}
}
}
// Quandl Datahandlers
/*
public void OnData(Quandl data) {
// Handle QUANDL DATA
}
*/
}
}
Andrew Nguyen
Michael Handschuh
AddData("CBOE/VIX", Resolution.Daily); The string "CBOE/VIX" can be obtained from the quandl website, here's the CBOE/VIX page. When defining ratios I like to make an indicator for it so I don't have to worry about updating it. We can easily define a ratio between two security's using something like the following:// first add our data AddSecurity(SecurityType.Equity, "SPY"); AddSecurity(SecurityType.Equity, "AAPL"); // this is an indicator that will always have the most recent value of SPY close var spyClose = Identity("SPY"); // this is an indicator that will always have the most recent value of AAPL close var aaplClose = Identity("AAPL"); // here we define the ratio of SPY/AAPL using the Over method, this is a new indicator // that will have the result of SPY divided by AAPL spy_over_aapl = spyClose.Over(aaplClose);Give the above a shot and share the algorithm back here if you run into more issues. Also, don't hesitate to ask any C# questions -- we're here to help!Michael Manus
more info here:
https://www.quantconnect.com/forum/discussion/1545/easy-volatility-investing
Andrew Nguyen
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