You could let your ego stand in the way of your improvement, or you could learn something from people who are more knowledgeable than you on the subject matter. You did not know many of the things that were mentioned in this thread before, so it is a net benefit to you.
When I backtested a model on the VIX, I found it made money hand over fist (though I didnt’ include roll costs because I didn’t have that data). For about 15 minutes I thought I’d found the philosopher’s stone of finance and my visions of models and bottles took on new life. Then I tried it on VXX and XXV and found I lost money (fortunately, only paper profits) or made so little I might as well do something else. That was odd.
The problem turned out to be that VXX doesn’t track the index very well, especially on large moves, and presumably it also includes the roll penalty. All that tracking error plus fees plus roll penalty just ate away at returns over time, or tracked the losses well, but the gains poorly.
The other issue is that if the VIX (or VXX) doubles during a spike or panic and you’re short, you’re now down 100% (before costs and fees). It’s just kinda hard for a trading system to recover from being down 100%, even if it loses 100% only once in a while.
This is all good, but was already covered on page 1.
I will be another voice telling you not to do this.
4 years ago I devised a strategy that traded XIV and VXX over certain periods. Epic return possibilities. I started trading it and I was up 80% after 6-7 months, then suddenly the volatility regime changed to what is has been the past 3 years and I lost everything I had gained through the next year before shutting it down.
My point is, don’t just look at recent history. In 2008 & 2011 if you had shorted it when it got above 20 I guarantee you would have gotten your arse handed to you and lost everything. Margin call, bye bye.
Also, make sure you know the borrow costs. For something like VXX I bet it is very high.
Finally, if it were that easy… don’t you think wall street would be doing it en masse!!!
As was already discussed, I modeled this back to the 1980s.
The masses are idiots, I never assume something can’t be done because they can’t do it. They can’t even find their car keys.
VIX futures data only goes back to 2004 - so VXX can’t be recontructed before that point without recontructing the futures term structure from historical listed vanilla prices…and the vix methodology itself changed during that time period.
…but those are just problems the masses have to deal with, clearly they don’t know what they’re talking about.
Yes, all this is already understood and accounted for, thanks.
Hey, it’s LPoulin! Long time, no see! Glad to have you back
Can I Short PureAlpha?
I love how this started with him admitting he wasn’t a pro at the subject and ended with him dismissing everyone
+1. Also I love his quote below…
You show those wall street idiots! lol. No one has the ‘feel’ you have!
FTFY
Eric Scott Hunsader @ nanexllc45m45 minutes ago
3 $ VIX related ETFs are in the top 10 most active NMS symbols: $ VXX $ XIV and $ UVXY
We all know about investment managers underperforming. It does seem true that most people don’t have “the feel” I have, nor the modeling skills, but I would not say “no one”.
I’ve read all the posts and mostly understand them, so thanks. Not sure people have read and understand my posts – which are simply about using financial strength and persistence for a certain win. The main issue was the one pointed out months ago (BChad if I remember); that you get caught holding for long periods. I modeled that out, many quick wins, some slow wins. The slow wins make the strategy not work as well as you would think, but the returns I modeled were still decent. So it depends on the environment, are there better opportunites than sitting on a VXX short for a couple years? Today I think no. Not sure why peole can’t comprehend basic thoughts. I’ve started posting over at the high IQ forum where I don’t have to explain everything 10 times. Seems a better use of my time. By the way, might short VXX, up 16% today, but I want to see it go higher this week first. Please continue commentary from the sidelines…
Thanks, good correction.
I happen to know LPoulin IRL too, so I gravitated to his reappearance more immediately, but PistolPt has a history as a quality poster, too, so deserves a shout out as well.
Glad to be back. I just wonder how the margin call will go when the VIX goes to 40 at some point for this guy.
Wish he would run his strategy on a public place so we can all bow down before the performance.
Otherwise known as the Water Cooler.
Well my alarm woke me up at 3am…
Would have made 5% return in 3 hours on VXX if I could have obtained a freakin’ short! Kept getting the IB status…“looking for shares”. VXX is listed as #2 largest ETF short value on IB.
why don’t you just buy XIV for those short periods where you can’t find shares to short?
Or just run your whole system using XIV instead of VXX? With a system this unbeatable, the instrument of choice should not matter.
^ Not sure if the strategy would work with that ETF, I’d have to think it thru.
Update, well I finally got a short on VXX yesterday, an easy 3.5% return this morning. Just took the profit, who knows what news on Greece comes out of nowhere.
I also took a small long in XIV yesterday, with more of a buy and hold mentality. If we can get some panic on Friday/Monday I’ll add to it. XIV seems to throw off smaller short-term gains than VXX (at least from the stats I looked at), but long-term you can of course make more than 100%, and you can’t lose more than 100%.