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Intraday Mean-Reversion Strategy (TVIX - VXX )

Here's a simple attempt at a mean-reversion/stat-arb startegy using TVIX & VXX. 8.7 Sharpe with very little drawdowns looks way to good to be true. As is, this startegy isn't tradeable because I dont think enough slippage has been taken into account but I am interested in seeing if anyone else can improve on this or has had any luck with mean-reversion. I have been trying to develope a stat arb strategy using the universe selection and a cointegration class that I wrote but it is extremely processor intensive.

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Why Don't you use XIV instead of shorting VXX?

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Shorting VXX has a higher margin requirement on IB, but can have a higher Sharpe. Moreover, due to the mechanics of these instruments there can be situations where both XIV and VXX fall in value at the same time, XIV is in other words not a perfect inverse of VXX.

Slightly off topic: IB recently upped their requirements because of people were going short vol en-masse. These are the new margin requirements on IB for short vol VIX products, someone might find this info useful:

  • Long SVXY or XIV: 100%
  • Short VXX or VIXY: 150%
  • Short UVXY or TVIX: 300%

 

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IB people sure thing know something ... getting ready for a crash ;-)

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