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VIX Volatility Model - Model switches to SELL on May 11, 2017

Published : May 11 2017 at 9:16 ET

The VIX Volatility Model (VVM) has switched to a SELL at the open. Price of XIV: <opening price>

For SELL signals, buy any of ZIV (less volatile apprx 0.5x), SVXY (1x), XIV (1x). The model thus believes the general markets will move higher thus volatility will decrease.

Notes:

If the model was on a BUY signal, first sell any BUY signal related ETFs such as VXX or UVXY, then buy ETFs such as XIV, etc (see list above).

For purposes of record keeping, 1x XIV will be used as the benchmark on SELL signals. For those who are more risk averse, buying ZIV (0.5x) is a better choice. Alternatively, one can position a smaller size to reduce risk.

We have stated this elsewhere but it bears repeating. Volatility related ETFs can have wide price swings. You may therefore wish to use your own sell stops though fail-safes are utilized in some cases. Nevertheless, overnight gaps in price cannot guard against this, and volatility ETFs can lose low double digit percentages in rare cases.

IMPORTANT: Keep in mind UVXY is highly volatile so after further thorough testing, a maximum fail-safe of 12% has been set. For XIV used in sell signals, a maximum fail-safe of 6% has been set. Fail-safes may trigger at a smaller loss depending on the situation. Based on backtests and real-time trading, the maximum fail-safes are triggered roughly 11% of the time, thus profits should far outweigh such infrequent events. Such maximum fail-safes can cluster such that the same buy or sell signal may trigger the maximum failsafe more than once.


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