TERADAT SANTIVIVUT
Introduction
VIX® Index—or Cboe Volatility Index® - is the most famous tool to gauge the “expectation of future volatility” of US equity markets.
It is constructed by using the bid/ask spread of SPX options over the next
How To Make Money By Shorting Volatility
Summary
- Shorting a proxy of the VIX Index using SVXY can yield over 20% annualized returns since 2019 by utilizing mean reversion.
- Strategy 1 involves incremental capital allocation at VIX levels of 20, 30, and 40, closing positions at a 20% profit.
- Strategy 2 focuses on investing 100% at VIX level 20, offering higher risk and return, with better risk-adjusted returns (alpha).
- The strategy is risky but offers market-beating returns and portfolio diversification, profiting mainly from quick corrections, not crashes.
My main area of interest is algorithmic trading and trading strategies. However, I am also very interested in macroeconomic topics, especially since I lived and studied in Shanghai for half a year. That is why I plan to write about those topics with a focus on China. I am one semester away from finishing my bachelor's degree in Economics and Finance and plan to pursue a master's degree in quantitative finance afterward. I have also visited finance-related events such as the Abu Dhabi Finance Week and hold a CISI level 3 certificate in Wealth and Investment Management. During the past 2 years, when I managed money via the copy trading system of Etoro, I realized that I would get far better clarity concerning my investment ideas when discussing them with other investors, hence my motivation to write on Seeking Alpha. My track record has so far been a rather conservative one. During the end of 2020, when I first started trading, my portfolio yielded 17.5 percent. Shortly before the crash in 2022, I went market neutral and managed to be almost flat on the year, only losing 0.16 percent. What followed was my worst year, only gaining 0.8 percent while the market was soaring. This made me realize that I needed a system for when to exit and enter the market and start my journey as a quantitative trader. Since then, my portfolio yielded 12.84 last year at a beta of less than 0.6. This year, I have finally increased my risk to enable a higher yield on my investment.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of SVXY either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
This article was written in collaboration with Pietro Lavisci, as has been linked in the introduction. While I do currently not have a position in SVXY, Pietro does.
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