SVIX vs VXX Puts

I like the idea of being able to use VXX puts instead of holding SVIX. Either method let’s me bet on volatility declining which can be a very helpful piece of a larger portfolio. However, I am not yet comfortable using the option version with large amounts of real money. So, I started a Collective2 strategy that would allow me to test the effectiveness using live go forward data. I have been running the strategy for about a month now.

I am currently publishing the strategy and paying about an extra $35 a month to run it. When trading options at C2 the fill prices are always at the worst case scenario of the bid or the ask if the strategy isn’t being followed by real money. Therefore, if I can make this strategy succeed on C2 it would likely be a good alternate with my own real money.

Results

Fortunately, VXX options are relatively popular with reasonable bid ask spreads. So far the results are not great making the $35 a month to test well worth it.

	Return	Peak
SVIX	6.25%	24%
SVIX via VXX Puts	-4.25%	15%

Current Position Calculation

I have been trying to keep the delta near 1 compared to SVIX while keeping the theta relatively low. Since we have recently had a pretty good drop in SVIX the net leverage has increased to about -1.2.

Tracking the results are going to be relatively easy as C2 will do most of the tracking calculations for me. I just need to keep the targeted -1X exposure using the put options.

Thoughts So Far

The theta cost may be the primary problem. At the moment the theta decay is costing roughly $177.64 a day. That equates to about 0.19% a day of the overall strategy. I don’t recall what it was at the outset before the recent volatility spike, but that certainly is expensive! If it has been roughly consistent for the last 32 days that could amount to about a 5.8% cost. It certainly makes me consider selling some cash secured puts or credit spreads instead in another strategy.

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