My observations from the C2 data: 1. the pnl from the trades posted is 28,000; but at one point you are long 300k of XIV (for 99 days). Even at a 50% margin, that's a 150k equity position and a 28,000 annual return (with 300k of potential risk). So I'm not sure how you get a 100% return given this one data point. Even if you said, that return is based on some random number (say the sizing of the first trade (50k)), then the return would still be 50%. At 150k (fully reg-t) you return 15%, while the unlevered SPY would have returned 20%+. 50k invested in the XIV would have been worth about 150k. 2. You are in the market for approximately 324 calendar days (vs 365). Of those 324 days, you are long the XIV 316 days making this essentially a short vol trade. My conclusion is that you are basically just a short vol strategy (not a bad thing), but have some timing component to avoid a drawdown (definitely a good thing) and giving up a substantial amount of pnl for this (definitely a bad thing). Until you are able to demonstrate that your market timing is actually saving significant pnl (like a 2011 type scenario), I would rather be long XIV in smaller size. In fairness, you haven't had that opportunity yet with live C2 data.
Here are my answers to your post: 1. It is not clear for me what you are trying to say. Do you want to say that the strategy performance is only 15% which is not good as invest in S&P or XIV? Really? Can you trade the past? Is there any useful meaning to this?...How could you know in advance what S&P or XIV would do since October 2016 until today? Can you tell me what they would do in the next 12 months? Of course you do not know, nobody know, so what you're saying here does not have any meaning.. Performance of 15%?? Many account holders which trade this strategy will smile if that will read this.. 2. You do not understand the strategy if you wrote this.. The idea of the strategy is not to try to generates good performance as much as possible.. The idea is to generates good performance as much as possible with LOW DD as much as possible.. Comparing XIV performance to the strategy performance does not have a lot of meaning in the real trading world..We are unable to trade the past.. 3. You prefer to buy and hold XIV. Well, if you speak about holding XIV it looks more like Buy & Pray Good luck with the roller coaster.. Are you aware that it can goes to a value of few $$ if the market will go down like in 2008? Really, do you really think holding XIV is better that trade my strategy?? Good luck anyway..
The theme of my post was 1. You didn't return 100% (which is what C2 says). If you did, please explain how my math is wrong based on the C2 trade export which showed 28,000 dollars of profit and consistent position sizes up to 300k and generally between 50-100k. 2. You are in the market like 80% of the days and you are long XIV like 95% of those days. But you underperformed buy and hold XIV by a lot. In fact to mimic your end return, one only needed to buy $10,000 of XIV while you spend a third of the time period long $300,000 worth of XIV. It's reasonable to compare your strategy to a buy and hold XIV because that is what you did 80% of the time and your strategy massively underfperformed that. 3. The question is if the other 20% of the time (and the pnl it cost you to be out of the market) worth the protection? You haven't had a chance to show that it does yet, but you are significantly behind your benchmark as of now. Personally, I wouldn't be bragging about these returns because 1. you haven't been able to demonstrate the strategy protects in a vol spike. 2. your returns against the capital deployed isn't very high. You can argue that your drawdowns are great, but if you have significantly lower returns then you have to scale up the strategy and thus increase the risk, so what's the point?
I am pretty certain when SPX futures where limit down at the open in August 2015, VIX was up more than 32% (it closed up 40ish from a mid 20 handle, if my memory serves me right) - can’t verify it because I am on my cell phone. Anyway, the key argument is that all your efforts to control drawdowns are meaningless considering the life span of the strategy (recall my post regarding the relationship of the driving moment of distribution to statistical significance).
I know this question isn't directed towards me, but if you will - long XIV is essentially a short volatility position via a 30 day exposure to the futures term structure. It is highly leveraged and volatile, for the most part. The unusually low variance of market returns has quelled volatility and the term structure's contango has provided a strong tailwind for XIV. However, look no further than August 2015 to observe the magnitude of drawdown you may experience - over 50%. This is a poor man's vehicle to trade volatility.
It's a constantly varying/rolling postion in the futures weighted to that 30 day mark...the idea that you can as a trader go short vol like this and not expierence huge drawdowns is I think the most naive thing about this strategy. The strategy is I realize not just a hold and wait strategy it's advertised a superior but it surely doesn't account for senarios outside the first moment as SLE stated. Your basically short the unknown tail of the distribution. Meaning when everyone else is getting squeezed from being short vol your likely one of the first to get liquidated. Your short the unknown unknowns. We have had a record length of low vol...why would one not take into account the fact that the regime will change and like everyone knows power laws describe the magnitude of vol...what is 2 sigma today might be nothing in tomorrows vol environment.... I say if you wanna take some real risk just sell call options otm on vix until you blow up or get rich as if your gonna do something that has a definite risk of ruin then you should at least try to really make some money right. I mean if your gonna do something stupid. Do something really stupid. Jk. Haha