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I trade volatility ETPs (SVXY, XIV, UVXY), S&P 500 through SPY, UPRO, SPXU, and invest long term in Dividend Growth stocks with high dividend CAGR values. Individual stock picking is a waste of time to me unless the company pays out large and high growth dividends. Macro mixed with Volatility... More
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  • 2013 YEAR END SCORECARD 32 comments
    Jan 18, 2014 6:18 PM | about stocks: SVXY, XIV, UPRO, TQQQ

    Let us look back at 2013 and see how the system I use to trade VIX cycles did and how I actually did with my trades. Why are the two numbers so different? Well I didn't truly understand the system until late June 2013 (I won't spend my capital until I understand it completely) and I hadn't fully proven to myself that I 100% trusted it until….well just a few weeks ago when running the numbers.


    226% gain with Zero losses

    First date is Buy date and second date is Sell date. 7 VIX cycles completed in 2013. Although I trade (NYSEARCA:SVXY), the data used is (NASDAQ:XIV) because that is how I have been plotting the VIX data in my excel sheet all year, not going to change it now! And yes I do keep track of this data daily along with other data not shown. That is a key to spotting the tops and bottoms, monitoring all the data daily.


















































































































    How I Actually Did 2013

    Trade Account - 46% Gain

    401k - 25% Gain

    SVXY trading

    June 26th 75.05

    July 26th 84.05 12% Potential Gain (only risked 50%) so 6% Profit

    Oct 16th 95.67

    Nov 15th 114.06 19.2% Potential Gain (I sold some early) so 13% Profit

    Nov 21st 127.81

    Nov 22nd 131.35 2.8% Actual Gain

    Dec 18th 126.90 (avg buy….work got in the way and cost me lots of money!!)

    Dec 20th 130.45 2.8% Actual gain (my own nervousness got in the way and cost me money! Sold to early)


    I traded a lot, too many to list. I did very well with UPRO all year increasing my total return by just over 15%.



    Sept 13th 34.50

    Sept 16th 32 -6.2% potential loss (only 50% in) so lost 3.1%

    I will always hate Larry Summers for this one. He dropped out of the running for Fed Chair and the market took off and killed my trade. No more UVXY for me.

    UPRO - New Years Trade

    Dec 31st

    Jan 6th 2014 - -3.5% loss

    So my final score from June 26th 2013 to Jan 6th 2014 was 35.5% trade account total return. My 2013 trade account gain for the entire year was 46%.

    My 2013 401k gain was 25% - almost exactly the S&P 500 gain. Not bad considering I only had an 8% gain by mid June - market was up 15% by that point. After that the market went up 11% and I gained 17% using the VIX cycles to trade my account. A nice outperform once I figured out the formula.

    I don't feel upset at all when I see the potential 200% gain from last year. Instead I am very happy to know that the VIX Cycle System can give me outsized gains from now on as long as I trust my calculations. Not once was my buy signal wrong in 2013, I just didn't trust it completely. And not once did my sell signal come after a start to a significant drawdown in SVXY. I did not nail the bottoms exactly and I missed out on some of the rise as well. But that's ok because I missed all 5 of the 20% drawdowns in SVXY. Always leave some money on the table so you can lock in your profits before they vanish.

    I don't want anyone to expect this kind of gain this year or going forward. The take away is this system will significantly outperform the market and outperform any of the other leveraged market ETFs like (NYSEARCA:UPRO), (NASDAQ:TQQQ), etc. If the market only goes up 10% this year with no major pullbacks then we are not going to see a chance to gain 200% but even at that level we can expect a greater than 50% return trading VIX cycles. So there is no reason to chase gains or rush in to trades because the train will show up again if we are patient enough to wait for it. During QE periods it is possible to very accurately time entry and exits spotting tops and bottoms using the VIX cycles.

    One Final Caveat.

    This system only works spot on when the bias is to contango on the VIX term structure. I do not have as precise a system for backwardation VIX term structure bias like what happened in most of 2006 and all of 2007. That is still a work in progress. Heck, it might not even be possible to time that one accurately but I will try. But it is possible to make outsized gains on VIX trading on any term structure dating back to 2004 (that's as far back as the data I have goes). Even in 2007 there were huge gains to be made using a modified version of the system I use.

    I will let everyone know when I get my next SVXY buy signal and will post all my cycle buy and sell signals when I see them in 2014. As of 1/18/14 it is a sell.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: VIX Call Spread $13 and $15 February 18th expiration ~ 4% of trade account

    Stocks: SVXY, XIV, UPRO, TQQQ
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Comments (32)
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  • Rock228
    , contributor
    Comments (845) | Send Message
    Author’s reply » Everyone - Please let me know what article I should write next, what would help people more? I like all these topics the same so it is hard to choose.


    -2012 VIX Cycles and what to expect for 2014 (I can't really write that 2nd part until we see how the market reacts by the end of January)
    -Detailed article on Market pullbacks since 2004, how to spot them and how to take action
    -My trading plan for the next market Crash / tidbits on how to spot it
    -How to trade VIX cycles in late 2006 and all of 2007 (trickiest time)
    -Max gain trade for VIX cycles (minimum capital risk with maximum gain) I am testing it still but it looks promising. Last year you could have risked 2% of your capital on each cycle and increased your TOTAL return by over 20%. When I leave my job, I am likely to use this tactic so my risk goes way down.
    18 Jan 2014, 06:31 PM Reply Like
  • Learner16
    , contributor
    Comments (315) | Send Message
    Thanks, Rock, for your articles and comments. Regarding your choice of topics, my personal order would be:


    1 - Detailed article on Market pullbacks since 2004, how to spot them and how to take action.
    2 - Max gain trade for VIX cycles (minimum capital risk with maximum gain).
    3 - How to trade VIX cycles in late 2006 and all of 2007.
    4 - Your trading plan for the next market Crash.
    5 - 2012 VIX Cycles and what to expect for 2014.
    19 Jan 2014, 08:43 AM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
    My votes:


    1. Max gain trade
    2. Trading plan for next market crash
    3. Vix cycles 2006/2007
    4. Detailed article on pullbacks
    5. 2012 VIX cycles and what to expect in 2014 Note: this would be second, and is only last because you have to wait to write it and I'm sure you will have the rest done by the end of January anyways! (just kidding - you know anything you find time to post with your limited time and other commitments is greatly appreciated!) Thank you for all that you contribute to the community here!
    19 Jan 2014, 10:07 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
    Excellent article and data again, thanks!


    All topics are very interesting, but my biggest favorites ATM are 1) VIX cycles and what to expect for 2014, and 2) your trading plan for the next market crash...
    20 Jan 2014, 09:48 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
    Rock, Nice article. Thanks for that. Can I give you an assignment which will be apt for this year, where market expects earnings( and revenue ) to grow and there by increase the multiple ( expansion ). Do we find a period in history where market is priced fairly, and trying(expect) to increase the multiple. We can have the cases where both it achieved it or disappointed. And, how did the vix behaved.
    For example, I am thinking what happens in the following 2 weeks, and if s&p earnings expectation of 7.6% is not met, will we see a 2% correction or will we see 10% correction.
    18 Jan 2014, 06:57 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
    Author’s reply » VTH - Tough assignment. I don't think we can do any 1 to 1 comparisons because of ZIRP, QE, and other Fed programs trying to control the market. I really focus only on VIX cycles and I don't try to guess or predict how far we pullback on market or even when, I simply let the signals tell me when the movement in one direction is complete. If anyone else wants to take on that challenge please do.


    A 10% correction...think of all the money to be made.
    20 Jan 2014, 07:23 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
    Nice job Rock, I am looking at your table and the historical prices to try to figure out how you came up such a good performance :-) As for your further writing, the more the merrier.


    BTW, when you were recording XIV prices along with VIX to spot a bottom or top, have you considered using the real underlying index instead of the XIV market prices? Sometimes they can have large (>5%) discrepancies due to the lag of XIV prices especially after CBOE has extended the VIX future trading beyond 4pm EST.
    18 Jan 2014, 11:22 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
    Author’s reply » wind - I use what Yahoo finance shows me XIV is and I use for the VIX, haven't looked into anything else. Do you have a recommendation?



    I prefer barchart over because it shows the delta for each VIX futures month in real time.
    22 Jan 2014, 07:36 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message


    Thank you for your recommendation on barchart, the change for each future contract is really neat.


    I also use Yahoo Finance to get the XIV price since it is easy. Sometimes when there is a big event I use marketwatch to get the real time true "VXX" price as XIV might be lagging or overreacting.



    And I maintain an excel file to fill in the real SPVXSP price and calculate the real true "XIV" price if needed.


    The historical inverse SPVXSP (true XIV) and related prices can be obtained from S&P website.



    Those are the official data and should be enough for most situations.
    22 Jan 2014, 11:05 PM Reply Like
  • Darrylb
    , contributor
    Comments (25) | Send Message
    Rock, thanks for sharing your fine work. I was wondering if anyone had tried or had thoughts on writting covered calls against a SVXY position?
    19 Jan 2014, 04:55 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
    Congratulations on a great 2013 Rock! It is great to get confirmation on your trading signals as well. I was really sorry to have only gotten into the volatility trade for the October and December events but those two trades ended up doubling my annual return (mainly December where I went in big!). 2014 is certainly off to a less than thrilling start but it is good to know that if we are patient our time will come. I'm looking forward to the next couple of weeks with FOMC and I see that the republicans have a retreat scheduled for the same week to decide if they want another fight on the debt ceiling.
    19 Jan 2014, 09:57 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
    Author’s reply » Tortoise - Speaking of being patient I want to run the numbers to come up with a few more "safe" strategies for investors, those with lower risk tolerances. There just aren't enough hours in the day with little kids!


    2013 wasn't a tough year to time, using RJLs buy, hold and sell signals would get you returns in the same ballpark to my returns. The trick is timing it well outside of QE IE - higher volatility years and especially funky VIX curve structures. I think I have all the tools needed.


    Darry - I have never spent much time learning about options strategies. I was told Covered calls work for slow moving stocks like a MO or PG. SVXY tends to move swiftly in one direction or the other. Can you explain a strategy that would work for SVXY?
    20 Jan 2014, 01:24 PM Reply Like
  • Darrylb
    , contributor
    Comments (25) | Send Message
    Rock - I've only tried this once and that's why I'm wondering if others are doing this and have advice. SVXY has weekly options. Since SVXY is fast moving, the options have a much higher premium than say a PG. They are also thinly traded, so the spreads are ridiculously wide. My thought would be that if we are in a quiet period, could some extra money be picked up by selling the next week or two's calls against SVXY shares held? You'd only want to do this if you thought you could buy the shares back lower if called away. Obviously, the short calls would hurt if SVXY moves up big and wouldn't help for a large SVXY drop. For example, last Friday, I tried to sell the Jan. 24th 144 weekly call for about a buck, but didn’t get my price. My thought was that I’d be happy to sell at 145 (144 the $1 option premium) if called or to pocket the extra $1 per share in 4 business days if not. Any thoughts would be appreciated.
    21 Jan 2014, 09:34 AM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message


    I have previously sold covered calls on some of my positions.


    Your analysis is spot on:


    1. Do it only in a quit period
    2. Do it when you think that SVXY will not jump
    3. Limit the sale to weekly
    4. Sell out of the money by a few dollars, so that if SVXY moves up a little based on contango, you capture the appreciation.




    1. You are at risk of a black swan event
    2. If SVXY drops alot, the premium received just covers a small portion of the drop
    3. If SVXY jumps a lot, you miss out on the appreciation.


    Good luck!!
    21 Jan 2014, 10:32 AM Reply Like
  • Darrylb
    , contributor
    Comments (25) | Send Message
    RJL - Thanks for taking the time to reply. This is exactly the information I was looking for!
    21 Jan 2014, 02:26 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message


    It was interesting to note that all of the trades you posted agreed with the signals I used last year.


    Similar to you, I did not fully utilize my signals in the beginning of the year. However, I was doing partial trades in the early part of the year using my signals and based on the gains I made, I did utilize my signals for the last 6 months of the year. The gains I had last year were the highest I ever had in over 35 years of investing.


    As I mentioned, these signals I used were for the period that we had QE. As I mentioned, these signals need to be adjusted when we are out of QE. Further adjustments need to be made in case of macro events, or if we are in backwardation.


    I feel that I have the investment experience to adjust my trades and I look forward to posting my trades, and having you post your trades, so that we can compare notes and hopefully help each other and all who participate in your blog.
    20 Jan 2014, 04:23 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
    Author’s reply » RJL - Congrats on the returns! Please do post when you buy and sell. Two (or more) heads are better then one especially someone as experienced as you are. I have only been actively managing money for about 5 years so.....still a TON to learn. Advice is welcome and encouraged. Let's make a ton of money for everyone who reads this!
    20 Jan 2014, 06:11 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
    Guys, i am seeing 2014 would be 20x better with you two around. Thanks and greatly appreciated.
    20 Jan 2014, 06:42 PM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message


    Congratulations on your returns also!!!!


    Even if we can't get triple digits this year (though a possibility with options), I would gladly accept a 50% return each year.


    This way we both can retire early and devote more time to helping others in their investments!!!


    I am also a very experienced option player, so that I can bring these trades to the table (for those who want to play options).


    Hope the family is well.


    20 Jan 2014, 06:51 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
    Author’s reply » All - Quick info on my buy signals during QE. Look at 9/4/13 - that was the trickiest buy timing of 2013. Why did I buy then? You want VIX to peak, XIV and Contango to bottom. When all three of those have happened then you wait 1 more day for confirmation that the trend has changed.


    So you can see Contango bottomed 8/28 and 8/29 but 8/30 VIX went up and XIV went down so no dice yet. 9/3 contango still bottomed, VIX might have topped and XIV might have bottomed. 9/4 you have your confirmation on all 3 indicators - Buy ~ 30 minutes before the close or wait until 9/5 to buy.


    Outside of QE those 3 indicators don't work as well or as quickly. 2 days confirmation can get you whacked hard outside of QE. You have to look for those indicators, wait a few days AND have those indicators above or below certain values otherwise you are day trading a lot and trying to catch these small moves and missing some of the big moves. I will write more on outside QE trading later in the year if QE is going away.


    BTW - Why did I know to sell 9/18? Historically things get weird 5-8 trading days before a manufactured event - like government shutdown and debt ceiling. 9/18 was 8 trading days before Government shutdown.
    22 Jan 2014, 07:31 PM Reply Like
  • VTH
    , contributor
    Comments (630) | Send Message
    Guys, do you see any signals. I am going to wait until middle of next week to understand the earnings bit more.
    23 Jan 2014, 11:11 AM Reply Like
  • RJL1955
    , contributor
    Comments (402) | Send Message
    Since I am travelling for the next few days, and I thought this may be a decent opportunity, I went ahead and bought a 25% interest in SVXY.


    I did not see a clear signal, but just playing a hunch that it will rebounds (will put a sell order in at $143).


    We have the FED meeting and the debt ceiling coming up, so that it may not reach this level (could drop lower), but I have plenty of available cash to play a big spike up in the VIX (if we see it).
    23 Jan 2014, 11:17 AM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
    I locked in gains on half of my VIX Calls today. This is what I should have done the first time they spiked last week! Nice to lock in a gain as VIX looks to close way off the HOD.


    I was doing a lot of thinking last night about all the contango I was missing out on this month, and the gains I was missing out on in the S&P and trying to decide what to do. Well, suddenly we are back down to where I sold in earlier in January - almost like we just did a reset on the YTD market.


    Might be crazy but just relaunched some of my position in XIV/ZIV today - ~1/5th position with heavier weighting to ZIV @ 39.20 and XIV at 35.07. If we are going to consolidate might as well pickup some of that contango. On the other hand... we could continue to breakdown - watching the S&P closely. TLT caught a huge bid today showing a flight to safety. All in all a really good trading day as we approach the close. Current portfolio configuration: 1/5th inverse volatility - .5% VIX Feb $15 Calls. and 4/5th Cash.
    23 Jan 2014, 04:07 PM Reply Like
  • Seppo Sahrakorpi
    , contributor
    Comments (2146) | Send Message
    Crazy me, I also bought 50% $SVXY today @$136.26....
    23 Jan 2014, 04:30 PM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
    Author’s reply » Friday tends to be a good day for SVXY. That being said I am not buying until I see a buy signal or a new trend after the Fed meeting.


    China version of beige book was bad, State of the union on Tuesday, Fed meeting on Wednesday. Lots to create volatility. I am being very patient. :)
    23 Jan 2014, 05:57 PM Reply Like
  • thetortoise
    , contributor
    Comments (102) | Send Message
    Good plan Rock! The market is showing serious cracks that will only be exacerbated by next week's macro events. Lots of ways this market could break down between now and then. I may end up dumping my XIV trade tomorrow after today's little run up.
    24 Jan 2014, 12:45 AM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
    Dear Gentleman,


    Greetings from Osaka,Japan....


    I was lucky enough to stumble upon some of your insights by viewing Rock 228's comments on an article on ZIV. I spent a portion of last night reviewing all of the posts by Rock and RJL1955. I appreciate your volatility trading efforts and insights.


    Mostly, I was trying to see if there was an underlying system that you are making all of your calls from. I am currently running three vola trading systems for comparison: two from the article "Easy Volatility Investing" by Tony Cooper (VRP and Roll Yield) and another simple relative strength system based on Frank Grossman's methods simply rotating between EDV and ZIV.


    At any rate, I think you all show a lot of wisdom with respect to subject. Still it looks that your trading is maybe 30-40% system based and 60-70% discretionary.


    Like Grossman, I really prefer futures to ETP's or options. What I am leaning towards now it using fairly light leverage a few months up the curve, rather than toiling with the excessive rolling of approximating 30 days out. Any thoughts? It seems that 2x leverage around months 5-6 would target the same portfolio vola as SVXY/XIV and would actually have better returns. It also seems it gives you a few more days to avoid a shift towards backwardization.


    Anyhow, nice to virtually meet you all, and I welcome any sort of dialogue.


    23 Jan 2014, 08:30 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
    Tony's paper is a wonderful one and I have learned a lot from his paper. My only concern is that when you are using Vratio or VRP all these strategies are highly correlated. So in that sense you only have one trend/momentum type of trading strategy. It is better to incorporate mean-reversion type of thinking like using Bollinger band, RSI and etc to diversify your portfolio if you are only trading SVXY. Saying that, I am still too lazy to develop a useful mean-reversion system:-)


    BTW, some one mentioned using in-the-money svxy option to place the bet and I think it is a good idea to buy say 10%-20% in-the-money call option as their delta is close to one. That is close to say 80% cash+20% svxy but the call option may give you a better results.



    is a good source if you want to get to know most of the gimmicks about volatility trading. Page 12 talks about why you wan to buy ITM call if you expect the underlying to go up quite a bit.


    Have fun and play it safely.
    23 Jan 2014, 09:38 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
    Greetings Windwine,


    Thanks for your thoughtful comments and also for the paper, which I had not seen before. Perhaps, great is the enemy of the good when it comes to trying to cover all possibilities.


    Try though I might, I cannot find any decent options strategies to closely approximate a directional trade in the underlying except for synthetic longs/synthetic shorts. Really the whole point is people overpay to be long options, and their is little or no leverage to be had with the vega of these things. Even that article you showed me has the subtitle on p. 12," "Forwards (or futures) Are Better than Options for Pure Directional Plays." With options you have to guess the direction, the magnitude of the move, and time frame. I would rather just try and sort the direction. Though I completely agree that high delta plays would be superior.




    23 Jan 2014, 11:04 PM Reply Like
  • windwine
    , contributor
    Comments (80) | Send Message
    Hi John,


    You are right about the disadvantage of using options in the directional plays. I do not play with options for the svxy either. For most of us not in the trading biz playing with other people's money I guess only allocating a portion of the portfolio in svxy to avoid the Armageddon is crucial. It sounds easy but avarice may urge us to all-in or even use leverage on it.


    Now VIX is at 15.0>the front month future at 14.8 while the term structure is still upward. Last time this "weird" case happened around 12/04/2013. Will there be a short rebound of svxy like last time?


    Good luck for all of us.
    24 Jan 2014, 09:56 AM Reply Like
  • Rock228
    , contributor
    Comments (845) | Send Message
    Author’s reply » John - Greetings to you! Thanks for the comment and kind words. I do use a "system" that is a hybrid of other peoples indicators and my own timing after studying the data since 2006. The buy and sell signals change as major events change the futures curve. I don't post the whole system anywhere for a few reasons. It works well enough for me.


    If it were as easy as always buy here and sell there then everyone would do it and we would all be millionaires. I haven't read up on the systems you mentioned but I will get back to you after I do. It might be awhile though. I am not a technical expert on Volatility, I don't know or really care to know all the fancy ways to think about it or make money on it. Simple strategy is the best for me so I can't be of service to you on anything more complicated then long SVXY, VIX calls or VXX puts and during the next crash long UVXY. Sorry.


    My strategy can get me 100% or more returns most years. That's plenty. Good luck and I hope you come back and add your knowledge to this blog. The more smart people on here the smarter we all become and more money we make.


    26 Jan 2014, 09:47 PM Reply Like
  • ikkyu
    , contributor
    Comments (293) | Send Message
    Hey Rock,


    Thanks for your reply. Sorry for my delayed response. I dumped a pint of water on my macbook air.


    I concur with the importance of simplicity when you are doing something risky. All three of those systems are very simple.


    Anyhow, look forward to following your trades.


    Cheers from Osaka!




    29 Jan 2014, 09:58 PM Reply Like
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