Equity · United States · ETFs · Daily · United States Free

Timing VIX ETNs

Academic paper

Understanding ETNs on VIX Futures

AuthorsCarol Alexander; Dimitris Korovilas

Institute

University of Sussex
HSBC Holdings
Peking University
?Peking University HSBC Business School
?University of Sussex Business School
University of Reading
ICMA Centre
?University of Reading - ICMA Centre

Paper linkhttp://papers.ssrn.com/sol3/papers.cfm?abstract_id=2043061

Strategy in a nutshell

: Daily VIX Curve Timing via XVIX-XVZ Rotation

The strategy trades XVIX and XVZ ETNs daily based on the VIX futures term structure. When the 30-day VIX divided by the 93-day VXV is below 1 (contango), XVIX is favored; when above 1 (backwardation), XVZ is favored. The portfolio is rebalanced daily, exploiting the complementary performance of the ETNs during different market volatility regimes.

Economic rationale

XVIX thrives in contango markets, while XVZ outperforms during steep backwardation, typically in market crashes. The strategy leverages these opposing dynamics, capturing volatility-driven returns while minimizing exposure to losses in the alternate ETN.

Backtest performance

Annualised return30.8%

Volatility23.49%

Beta0.448

Sharpe ratio1.14

Sortino ratio0.402

Win rate45%

Full Python code

1from AlgorithmImports import *
2#endregion
3class TimingVIXETNs(QCAlgorithm):
4def Initialize(self):
5self.SetStartDate(2012, 1, 1)
6self.SetCash(100000)
7
8self.symbols = ['SVXY', 'VIXM', 'XVZ']
9for symbol in self.symbols:
10    data = self.AddEquity(symbol, Resolution.Daily)
11    data.SetLeverage(5)
12self.vix = self.AddData(CBOE, 'VIX', Resolution.Daily).Symbol
13self.vxv = self.AddData(CBOE, 'VIX3M', Resolution.Daily).Symbol
14self.settings.daily_precise_end_time = False
15def OnData(self, data):
16if not all(x in data for x in self.symbols): 
17    self.Liquidate()
18    return
19
20if self.vix in data and self.vxv in data:
21    vix_price = data[self.vix].Value
22    vxv_price = data[self.vxv].Value
23    
24    if vix_price != 0 and vxv_price != 0:
25        ratio = float(vix_price / vxv_price)
26        
27        if ratio < 1:
28            if not self.Portfolio['SVXY'].IsLong and not self.Portfolio['VIXM'].IsLong:
29                self.Liquidate('XVZ')
30                if data['SVXY'].Close != 0 and data['VIXM'].Close != 0:
31                    self.SetHoldings('SVXY', 1)
32                    self.SetHoldings('VIXM', 1)
33        else:
34            if not self.Portfolio['XVZ'].IsLong:
35                self.Liquidate('SVXY')
36                self.Liquidate('VIXM')
37                if data['XVZ'].Close != 0:
38                    self.SetHoldings('XVZ', 1)
39else:
40    self.Liquidate()