Yes I cannot help myself: we must be able to conquer this beast called Vola
Economic thesis, loosely defined:
1) there is information in the synthetic VIX versus the real VIX or VXX,
2) the Volatility of the VXX says something about the underlying and therefore the real market (Kory)
3) by assigning a low amount of capital to a high volatility strategy you prevent being taken to the cleaners but profit from upside (Alvarez)
Thanks to Kory and Cezar Alvarez, I present a strategy that one could trade, but looking at the tear sheet and the equity curve I suspect that this strategy is its current form and the current market does not perform.
For equity curve jockeys: none of the parameters are optimised, the use of cash is not optimised
For Contest Jockeys: easy to isolate the Alpha with hedging, I can't be bothered with the contests
Alvarez has some more "anti-cleaners" strategies that I didn't implement, one could test them out
Pull in VIX and see whether the VIX and WVF can play nicely
I'm not trading this strategy, needs more time and trading guards and I would wait to see whether the strategy is going back to older levels of volatility as the DD in the last 2 years is double from the years before.