The Volatility Edge, A Dual Approach For VIX ETNs Trading

Carlo Zarattini, Andrew Aziz and Antonio Mele
Additional contact information
Carlo Zarattini: Concretum Group
Andrew Aziz: Peak Capital Trading; Bear Bull Traders
Antonio Mele: University of Lugano; Swiss Finance Institute; Centre for Economic Policy Research (CEPR)

No 25-91, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Volatility isn't just a measure of market fluctuations; it is the underlying asset of a large number of tradable instruments. After a concise overview of the history of volatility trading, this paper shows how individual investors can construct portfolios that aim to capture the volatility risk premium using nothing more than VIX-linked exchange-traded notes (ETNs). We test four rule sets, beginning with a constant short-volatility allocation and ending with a dynamically sized strategy that responds to both the option-market premium and the slope of the VIX term structure. Over 2008-2025, and after realistic costs, the final version compounds at 16.3% per year, delivers a Sharpe ratio of 1, and keeps equity-market correlation near 15%. Blending even a modest slice of this strategy into a passive SPY portfolio can lift the combined Sharpe ratio by 20%. We also outline how the rules can be automated through a standard broker API. In conclusion, volatility trading is no longer the exclusive domain of institutional hedge funds. With the right tools and discipline, individual investors and systematic traders can now access and exploit volatility-based strategies. However, one must always be mindful: volatility itself is volatile-and should be handled with care.

Keywords: Trading Systems; Algo Trading; VIX; Volatility Trading; VXX; VIX ETNs; Automatic Trading (search for similar items in EconPapers)
Pages: 38 pages
Date: 2025-10
New Economics Papers: this item is included in nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5316487 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2591

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().