Exploiting VIX Futures Roll Return with ETNs

Posted in Commodity Futures, Volatility Effects

 

“Identifying VXX/XIV Tendencies” finds that S&P 500 implied volatility index (VIX) futures roll return, as measured by the percentage difference in settlement price between the nearest and next nearest VIX futures, may be a useful predictor of iPath S&P 500 VIX Short-term Futures ETN (VXX) and VelocityShares Daily Inverse VIX Short-term ETN (XIV) returns. Is there a way to exploit this predictive power? To investigate, we compare cumulative performance for: (1) buying and holding XIV; (2) timing XIV to avoid times when the roll return is positive; and, (3) timing XIV and VXX to exploit both negative and positive roll return conditions. Using daily closing prices for XIV and VXX and daily settlement prices for VIX futures from XIV inception (end of November 2010) through February 2014, we find that: (more…)

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