Holding steady with my VIX hedging strategy

by Robert Zingale|Published April 19, 2012

Author: Robert Zingale

Covestor model: Volatility Mean Reversion

Currently, short-term VIX futures are experiencing rolling costs (first to second month futures) greater than 10%, which is working in favor of my short position in Barclays Bank PLC iPath S&P 500 VIX Short-Term Futures (VXX). Therefore, I plan to maintain my current asset allocation strategy of short 100% VXX and long 100% the S&P Mid-Term Volatility Index (VXZ) while these rolling costs remain above 6.5%.

I expect these rolling costs to remain above this level as investors remain cautious about global economic growth. If the rolling costs fall below 6.5%, I will reduce exposure accordingly.

If Contango is still above 10% before April’s future expiration, I plan to short additional VXX to exploit the VIX future’s convergence at expiration.

AUTHOR

Robert Zingale

I have a passion for investing and have been actively managing my personal brokerage accounts since I was an undergraduate at Cornell University. Through my studies at Cornell, I realized that the only way to accurately statistically model an asset is to determine what the average price of that asset should be. I use VIX futures to implement my investment strategy, based on my valuation assumptions.

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