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ProShares Short VIX Short-Term Futures Message Board

  • nefariouswu nefariouswu Aug 3, 2014 7:05 PM Flag

    Joey one last question, I know you're not much into backtesting sometimes but

    I wanted to ask if you have seen the guy Macro Investor on seeking alpha. He has back tested a strategy that does this: first week of January you put 50% of your money in SVXY, 37.5% in SVXY calls expiring 12 months out that are 40% out of money, and 12.5% in SVXY puts expiring 12 months out that are 30% out of the money.

    The annual return since 2005 is 125% with a max draw down of 48%. In other words in 10 years 10K would turn into about 20 million dollars. What do you think about this, is it something you would ever try?

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    • Since this is a bullish strategy (3 calls to 1 put), it would appear to work best in a long term rising market. If you had bought on Jan 2, 2014 whe SVXY was 66, you would be holding the 92.00 calls. You would have made a nice profit, but only if you had sold near the high. However, if your buy date just happened to be this year's high price of 93, you would have ended up buying the 130.00 calls.

      I just noticed that the 200 dma for SVXY is now at 68.33 This is the midpoint of the 52 week high/low. This morning, the SPY bounced off it's 100 dma.

      What about the idea of buying on a monthly basis.
      If SVXY is above it's 50 dma, you would buy one call (or one unit).
      If below the 50 dma but above the 150 dma, you would buy 2 calls.
      If below the 150 dma, you would buy 3 calls.
      Any calls bought while below the 150 dma would automatically be sold when it rises above the 50 dma.
      Does anyone have a program to back test this strategy?

    • joeydorknobinschmidtjunior Aug 4, 2014 9:28 AM Flag

      Hi Nef,

      Honestly man I do not ever read the stuff that every other joe has bookmarked and has also read :)

      My initial thoughts on Seeking Alpha guy is that he's made a ton of assumptions on not only svxy back to 2005 but more so options on svxy going back that far. I think it's roughly do-able but first off, I don't think much of etf/etn's as you know and secondly I am not all that big on guys with theory but no money/profit on said theories to back it up. Back-testing stuff like that would be exceedingly difficult.

      If you want zero-to-hero theories just go to youtube - i find a lot of paper-zllionaires and experts there all the time. I just don't see how my semi-annual profits are more than their entire net worth, if they're really that good. lol.

      As for your question in the other thread, I've kind of already gave you an idea of what some of my algo's are based on.

      Lets think about it as simple as you can. You want to capture the term-structure decay but you need to avoid the heavy beat-downs.

      Given that, you know you need to be long something and short something else along the term structure and it's likely going to have to be in some fixed ratio - at least to be able to back-test it with some amount of certainty.

      So start there.

      Some scenarios are vix future vs vix futures, other ideas may be vix futures vs ES etc..

      I'll admit i have done a lot of 'original' work, only to find out at a later date that some university members have done similar and with much more mathematical rigor than I have. It's both a let-down and a joy. Let-down that i was not first but joy that someone else too had come to the same ideas for the same reasons and now i have corroborating evidence of my thesis.

      What makes it even better is putting it into practice and making real money.
      You either have to do your own work or fully understand what is behind the work you're looking at or you're just going to keep groping around in the dark looking for the crystal ball.

      • 1 Reply to joeydorknobinschmidtjunior
      • joeydorknobinschmidtjunior Aug 4, 2014 9:43 AM Flag

        I think it's also important to note that my ife is not all peaches and cream, no draw-down, no stressful events etc.

        Oh if only...

        The difference is since i've personally done the work and believe completely in the thesis, it makes simply accepting the short-term niggles and ignoring the draw-downs since there's nothing in the thesis that says it's blue-sky every day.

        I also am not saying that the ball-parked 2% a month is exactly right, will be the long-term average, is linear, etc. You just can't define it like that. All you really need to know is that's they're good trades, have a statistical draw down of XXX and a statistical gain of YYY and then let it alone.

        Leave it alone. Why go to all that statistical/mathematical work and then fudge it up by humanly intervening?

        That's the hardest thing to learn, I'll tell you that.

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