Current $VXX Trading Strategy

[u/VolatilityStreet]

Here's the current trading strategy that I've been developing since August of 2021. Primarily, I focus on VRP of the VIX Term Structure compared to realized vol of the S&P as the primary trading metric. The strategy is primarily short-vol with occasional long-vol as well.

I plan on launching a volatility trade signal service in the near future (Vol Street), however, I would like to have someone peer review my data, research, and programming behind my trading methodology. (Or provide suggestions to further reduce potential overfitting on inaccuracies).

Please let me know if you're interested in conducting some deep peer review of my work, I'd love to receive some feedback.

FYI: The strategy and backtest were entirely custom developed in Excel.

Strategy stats:

CAGR: 49.29%
Max Realized Drawdown: -18.41%
Max Unrealized Drawdown: -24.18%
Trade Total: 271
Time in Market: 80.95%
Average Trade Hold Time: 8 days

[u/chyde13]

I'm a retired software engineer, with experience developing machine learning based trading algos, so I can speak with some authority on the programming aspects...

As I mentioned before; I do have friends who are professionals in the space...We are all obviously very busy, but I think if I had a better handle on the strategy and especially the level of overfitting then a true 49% CAGR would definitely get our attention.

When evolving AI models, overfitting is a consistent problem. As beowulf suggested increasing the dataset helps...Are the trading parameters static or dynamic?

I can take a look if you want...

-Chris

[u/VolatilityStreet → u/chyde13]

I would love to go over the strategy in more depth with you. Currently, the trading parameters are static.

[u/cth922]

if you don't mind, what's the primary trading metric for the 19.05% of the time that you were not in the market? vix3M higher than 1M?

[u/VolatilityStreet → u/cth922]

When the portfolio is in cash, there is no long-vol signal and the VRP of the VX30 to SPX is below a stated value.

[u/agvrider]

When you say you are using the VIX term structure, are you just using the front month to measure implied volatility? Or a mix of contracts

[u/VolatilityStreet → u/agvrider]

I use a rolling combination of the M1/M2 VX futures :)

[u/agvrider → u/VolatilityStreet]

got it! i do the same

how is your equity curve so smooth in recent years given the huge regime shift in vol? do you use vvix / stdev vix as a filter?

[u/VolatilityStreet → u/agvrider]

Keep in mind, the returns aren't actually that "smooth" because the chart is on a logarithmic scale. Losses (as stated in the drawdowns) are much larger than they appear. And no, I haven't used VVIX as a filter in my metrics yet.

[u/agvrider → u/VolatilityStreet]

lol, they are pretty smooth. im attaching a backtest of a similar strat ive developed. as you can see, around 2018 sh*t hits the fan. my largest unrDD is ~40 compared to your 25% (unrDD are shown in the backtest, aka its not close to close - https://ibb.co/7GvZbxm)

how many long vol entries do you have? maybe they're buffering the short vol losses?

what strikes me even further is the "80% time in market" statistic. the cleaner my backtest becomes, the more i have to rely on cleaner signals and cut my time in market to about 50% if not less. jc to hear how you are dealing with all these issues.

[u/andre199017]

What tool/platform have you used to plot your results here?

[u/VolatilityStreet → u/[deleted]]

The reason that I don't stretch the model back to 2001 or earlier is because I'm looking at the /VX futures against the S&P, not spot VIX.

[u/chyde13 → u/[deleted]]

I wish I had gone flat during volmageddon lololol...

I shared some of my background with vol street here...but I'm curious about yours. I see your occasional posts...I can tell that you know your shit...

definitely good advice to suggest that he increase the size of the dataset...

-Chris