Robert Zingale is an analyst with Google at the company’s Bay Area campus. He was an economics major at Cornell University, where he joined a student-run investment club that served as his introduction to stocks and investing.
Robert now practices volatility statistical arbitrage, which first piqued his interest at Cornell:
Through my studies, I learned about the returns that can be generated by backwardation and contango from futures. I researched whether any particular futures tend to constantly stay in either backwardation or contango and were also relatively easy to exploit. I found that volatility futures are consistently in contango. Additionally, I realized that the only way to accurately statistically model an asset was for the asset to have a mean reverting level. Since VIX futures have this characteristic as well, this is my investment strategy.
VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, which shows the market’s expectations for 30-day volatility.
Robert manages the new Volatility Mean Reversion model on Covestor, which seeks to generate returns by exploiting these temporary deviations from the mean-reverting level of volatility futures.
Robert typically sells short the VXX (iPath S&P 500 VIX Short-Term Futures ETN) and purchases XIV (VelocityShares Daily Inverse VIX Short Term ETN). The amounts are determined by current VIX levels, and rebalancing occurs after the VIX reaches key levels that trigger cover and short actions. Most of his portfolio is allocated to cash and/or Treasuries until volatility rises to levels warranting larger short positions. Given the negative yield that contango creates, this strategy is short biased.
In the model, he’s currently (as of 6/2/11) short the VXX.