Exploiting VIX Futures Roll Return with ETNs
July 15, 2015
“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 performance data for:
- Buying and holding XIV.
- Timing XIV to avoid times when the roll return is positive.
- Timing XIV and VXX to exploit both negative and positive roll return conditions.