Backtesting the Implied Volatility Long/Short Strategy (6/28/16)
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Post Outline
- 4-Week Holding Period Strategy Update
- 1-Week Holding Period Strategy Update (Target Leverage=1)
- 1-Week Holding Period Strategy Updated (Target Leverage=2)
Updating the Implied Volatility L/S Strategy (6/21/2016)
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There are two versions of this strategy that I have previously tracked and reported. The original strategy consists of forming weekly portfolios each held for a period of four (4) weeks before being liquidated. The second strategy is a higher frequency version which forms weekly portfolios with a holding period of one (1) week. Thus far, both strategies have exceeded expectations. Their apparent theoretical success is so far beyond expectations it required much deeper investigation and better simulation. The returns being reported demand better validation.
Read MoreUSING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (6/04/16)
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To see the origin of this series click here
In the paper that inspired this series "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?" the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio.
Read MoreUSING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (5/31/16)
/
To see the origin of this series click here
In the paper that inspired this series "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?" the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio.
Read MoreUSING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (5/21/16)
/
To see the origin of this series click here
In the paper that inspired this series "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?" the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio.
Read More