Monday, February 4, 2013

VIX-Trading Portfolio Update for Week Ending 2/1/13

With the market up again in the latest week, the VIX-Trading Portfolio gained over and above the return of the S&P 500 once again, as it continue to be doubly exposed to the market's return. The portfolio has slowly closed the performance gap that opened earlier in the year and now stands just 150 basis points under the market performance on the year and 470 basis points since inception. At one point, this gap was more than double those figures. Year-to-date, the VIX Trading Portfolio has gained 4.6% and is up 2.7% since inception. This was helped by a 1.3% gain on the week.



With that said, I will be reducing the double-market exposure in today's (2/4) trading day and will positive the portfolio to passively accept the market return. The VIX closed the week at 12.9 and I calculate the weighted average standardized VIX to be a -2.05. In of itself, a weighted average standard VIX equal to or less than -2 has usually been associated with negative future performance on the market. This would suggest a short position is warranted. However, this negative bias is nullified when certain conditions exists including when the VIX skew is negative or the price/volume diffusion index is above 50 or 60. The VIX skew is currently -0.78 while the diffusion index is 63.9.

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