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.
