VIX Volatility Model - VIX Spiking Strategy - Surfing the Tsunamis 9-10-16

Published : September 10 2016 at 12:27 ET

To Take or Not To Take Profits

Note, on Friday September 9, 2016, the markets staged a big sell-off, thus the VVM ended its July 15 sell signal up +17.16%. Members had received emails on taking partial profits when VVM was nearing a +30% profit on August 11, then again on September 9, 12 minutes after the market opened when VIX Volatility Model (VVM) was still close to a +40% profit.

Thank you for the notices (though please message me here instead of on other platforms if possible), and congratulations to those of you who took partial profits at higher levels. That said, I build the model from the ground up, so I prefer to go all-or-nothing thus sold my position just before Friday's close for a +18.1% gain. Yes, I could have had greater gains had I partially sold earlier, but a few of these sell signals can reach far greater profits. So my trading personality is often to go for the home runs which can make a huge difference to all the little losses. That does not mean I would not find a better way to handle such a sell signal in the future since market strategy is never static. Change is the only constant. Thus a deep-learning/machine learning approach can work well. 

VIX Spiking Strategy - Surfing the Tsunamis

VVM's VIX Spiking Strategy was activated near Friday's close, so it went to a buy signal. This is a rare set up that has occurred at most four times a year. Though the more volatile the year, the more signals issued. This year has seen four such signals so far, and with major political and economic tsunamic headwinds on the way, this number could increase. 

To those who have asked, pocket pivots are used for stocks and concentrated ETFs such as GLD and SLV, not volatility ETFs, even though Friday's action as some pointed out was "pocket pivot"-like. 

Also note there is no such thing as a holy grail when it comes to investing. 

The VIX Spiking Strategy focuses on highly volatile periods. When it detects a potential setup for spiking volatility, it has been profitable more than half the time using the VXX/UVXY ETFs. This means it also has its share of losers.

It misses many spikes, but only focuses on the most probable setups based on price/volume in stocks, indices, and various volatility instruments. Gains have ranged between 14% and 108% (8/20/15: bought UVXY near the close, 8/24/15: sold UVXY at open). A profit taking rule is built into this strategy which looks to lock in profits once a gain of typically 14-15% is achieved but will allow profits to run if certain conditions are met such as on 8/20/15. Meanwhile, the worst drawdown to this particular strategy has been just -9.4%.

This is a highly volatile strategy so keep in mind that larger drawdowns are always possible.

Buying on Monday?

For those who have said they will buy a volatility ETF such as VXX or UVXY at Monday's open, should the market gap higher or lower at its open on Monday, figure that into your risk levels. Thus if you pay 3% more for VXX than its closing price on Friday, that means you are taking an additional 3% risk above what VVM would take. Double that risk if you're trading UVXY. 


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