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VIX: Systematic Strategy

The Street



By Jared Woodard

It's time to roll our systematic CBOE Volatility Index (VIX) [3] strategy forward another month. I wrote up a three-point review of the strategy back in October ("Rolling the Volatility of Volatility" [4]), so check in there if you aren't already familiar with the basic ideas.

First, we want to close out our existing VIX February/March position:

Trades: Sell to close the VIX February 18 puts at $3.85 and sell to close the VIX March 24 calls at $0.30.

We paid $3.75 for this position in early December and the $0.40 gain means we actually earned a 10% return while also owning some free portfolio insurance. One of the attractive features of this strategy is that, historically, most months earn a positive carry even while being positioned to benefit from a market decline. We still have a trade open in the March/April cycle.

Next, we will open a new position for April/May:

Trades: Buy to open VIX April 16 puts for $1.80 and buy to open VIX May 20 calls for $1.65.