BearTrader subscriber notice: Trading Strategy adjustments for BullVix’s 2020/2021 VixVortex
The article “S&P 500 is in a ‘VixVortex’; Expect Double-Digit Decline,” published on 5/8/21, explains what I consider to be my most important ever breakthrough. Harnessing the Vix has been the most intellectually demanding and exciting endeavor I’ve undertaken in my 44-year career.
Increases in supply or demand for shares do not drive market shifts for ETN shares and call options that mimic the VIX. Changes in the ratio of puts to calls purchased on the CBOE are the driving factor behind them.
Throughout March and April, I was conducting empirical research in order to improve the BullVix’s performance. Every time I thought the changes were final, I ended up burning more midnight oil, resulting in more discoveries.
Subscribers’ stakes in the UVXY and VIXY/VXX are expected to gain 100 percent to 200 percent as a result of the VixVortex currently in effect. The good news is that since the VixVortex started, the BullVix’s 13 signals have only provided a 5.6% gain through May 7, 2021. The gains for the three previous VixVortexes ranged from 82% to 116%. The vast majority of the current VixVortexes’ profits have yet to be realized.
The most important benefit of the new research was a big improvement in the risk-to-reward ratio for trading VIX and UVXY call options. The adjustments to the algorithm resulted in a BullVix RED or buy the VIX signal having a maximum duration of five days and an average duration of 3.17 days.
As a result of the change, slightly out-of-the-money call options with short expiration dates can now be used as a hedge. Holders of the VIXY/VXX and UVXY can double down without having to outlay significant cash thanks to the hedge.
For the 2020/2021 VixVortex, which started on 11/13/2020, the chart below depicts the output of the BullVix (VIXY & SPY) vs. the VIXY/VXX. The BullVix chart shows a minor 1% drawdown or decrease and a sideways trend through February 9, 2021, followed by a cumulative gain of 5.6 percent as of May 7, 2021.
There are two types of VixVortexes. The two, 2018/2019 and 2020 depicted in the charts at the bottom of the page each had one BSA occurrence and had a maximum duration of 75 days. The 2020/2021 VixVortex with a to-date duration of 120 days has behaved similarly to the 017/2018 VixVortex, which had a duration of 115 days. The first VixVortex is depicted in the chart below.
The 2017/2018 and current 2020/2021 VixVortexes also each had six and 11 BSA occurrences respectively. Most importantly, VIXY shares increased by 70% within 10 days after the fourth consecutive weekly BSA had occurred during the 2017/2018 VixVortex. VIXY shares are ripe for a significant increase. The last and fourth consecutive BSA for the 2020/2021 VixVortex occurred on April 21, 2021, which was 10 days prior to May 10, 2021.
Given the statistical findings and the fact that the end of the current VixVortex is near the following strategy is recommended for all subscribers:
- Continue to hold positions in VIXY, VXX, and UVXY until another BSA occurs. The BullVix will not give any orders to sell a long-the-VIX position to purchase the inverse which is the SPY. Should another BSA occur the instructions will be adjusted accordingly.
- If a red signal occurs, BullVix will send out alerts with specific instructions to buy VIX, VIXY, VXX, and UVXY call options.
The amount of call options to be purchased will be based on a ratio of calls to VIXY, VXX, and UVXY shares held. To prepare enable your account to buy and sell call options. Also, calculate the following:
- Determine the number of shares that are held.
- Divide the number of shares held by 100. The divisor is the equivalent for the number of call option contracts to be purchased. For example, a 10,000-share stake in the UVXY would equate to the purchase of 100 contracts.
The VIXY call options with a strike of $8.50 and an expiration date of Macy 21st is a good example of how the new strategy which leverages the new findings can be very successful. The calls were trading at $0.50 on 5/11/2021. A purchase of ten calls is the equivalent of 1,000 shares of the VIXY. Should the price of VIXY shares increase to $13.00 the intrinsic value of the 10 call option contracts would reach increase to $4.50 and provide a net gain of $4,500.
The VIXY’s performance during the four VixVortexes is depicted in the chart below, which spans November 9, 2017 to May 10, 2021. The chart also shows the VixVortexes’ fourth consecutive weekly BSA occurrences in 2017/2018 and 2020/2021, as well as the VIXY spike that followed the 2017/2018 fourth consecutive BSA occurrence.