SPY - SPDR S&P 500 ETF Trust
Medium Term - from 1 day to multiple weeks and months. May engage in occasional day trades if conditions require it.
Signals are evaluated continously throughout the trading day.
One or more trades per day may be executed. Many days there will be no trades.
Jan 1st, 2016 - present
This is a high-risk volatility strategy that is best suited for qualified high net-worth investors with high risk tolerance due to the significant volatility of monthly returns and high annual drawdowns.
This strategy should have at most 20% allocation of overall liquid investments.
This is a Long/Short Volatility strategy. The goal of this strategy is to take advantage of both SVXY and VIXY whenever they go on multi-week positive runs.
The strategy will be either in SVXY or in VIXY, usually not at the same time. Sometimes the strategy may take both sides of the trade to take advantage of elevated volatility conditions.
The strategy may have full or partial exposure to the ETFs. In other words, it can be 25% long SVXY and 75% cash, etc. Trades are done in quarter lots (in multiples of 25%).
The strategy may have long stretches where it is fully in cash if conditions don't favor neither ETF.
On an annual basis, it is expected the strategy to be always positive and to outperform the S&P 500 on an absolute basis.
The strategy is expected to have low (near zero) correlation to the S&P 500.
Generally speaking, the strategy aims to follow the signaling of the algorithmic strategies:
- Open LONG SVXY position on a UltraSVXY BUY Signal
- Close LONG SVXY position on SmartSVXY SELL Signal
- Open LONG VIXY position on SmartVXX BUY Signal
- Close LONG VIXY position on SmartVXX SELL Signal
The strategy will take advantage of indicators that are not factored in the algorithmic strategies and will sometimes be in or out before or after the algorithmic strategies.
The strategy will take advantage of the Portfolio Manager's understanding of Technical Analysis to avoid large drawdowns and spot turning points in the market that may
not be detected in time using the Volatility Indicators. Sometimes the strategy may take a contrarian position to the algorithms due to unexpected events or fundamental market developments not captured by the algos.
Trading Account Considerations
This strategy targets margin trading accounts. As a result, buy and sells can be immediate and intra-day and are not subject to a 3 day settlement. No slippage is assumed.
A trading fee of $7.50 per trade is assumed. The initial amount for the strategy portfolio is $100,000. Any portfolio cash is assumed to generate 0% return.
Due to the termination and delisting of the VelocityShares Daily Inverse VIX ST ETN (XIV) on February 15th, 2015,
the strategy will start using the ProShares Short VIX Short-Term Futures ETF (SVXY) which provides an almost identical exposure to the
short volatility asset class. The strategy will start using the ProShares VIX Short-Term Futures ETF (VIXY) instead of iPath S&P 500 VIX Short Term Futures ETN (VXX) for long volatility exposure.
We have decided to stop using Exchange Traded Notes (ETNs) going forward due to the limited nature of the products and tax considerations.
For tax considerations, short-term VIXY and SVXY gains are subject to 1256 tax treatment (60% of the gains are treated as long term, 40% as short term) whereas short-term VXX gains are taxed 100% as short-term.
If a VIX futures strategy is expected to make money over the long term, VIXY and SVXY should be the preferred instruments.
Prior performance does not guarantee future returns. There are no backtests for this strategy as it is a discretionary strategy.
Black Peak Ventures does not provide professional financial investment advice specific to your life situation. EliteVIX is an investment strategy that may not be suitable for your life situation.
Black Peak Ventures provides investment analysis of the CBOE VIX futures market and related exchange traded products using algorithmic and discretionary signals derived from proprietary indicators, measurements and analytics.