I am pleased to offer a signal service based on a 100% mechanical and automated trading strategy I call VIXEN.
What Is VIXEN?
As may have guessed already the strategy tracks implied volatility and in my not so humble opinion is the best trading system I have ever developed to date (and I’ve done this for a long time). VIXEN leverages VX index tracking inefficiencies in volatility related exchange traded products (ETPs). It is 100% mechanical and zero discretion is recommended.
The system has been exhaustively tested between 2014 up to date and appears ‘anti-fragile’ as it performed consistently throughout diverse market cycles over the past four years. Performance does not appear curve fitted as changing system parameters only marginally affects performance.
What Does It Do?
VIXEN takes short trades on the VXX, UVXY, TVIX, and long trades on the inverse SVXY. It does not hold overnight and unless stopped out always closes at 3:53pm Eastern.
Median expectancy across all four ETPs without trade scoring has been .32R across 1698 campaigns combined over four years (424/year). With trade scoring > 4 this rises .38R across 1370 campaigns over years (342/year). Trade scoring > 5 increases expectancy to a median of .45R across 838 campaigns (209/year).
VIXEN has performed consistently on a long term basis with relatively low drawdown periods. Max drawdown unfiltered by trade scoring has been ~37 R across all four symbols combined, which comes out to < 10R per symbol. Filtered > TS4 this drops to <22R which is 5.5R per symbol, which IMO is the sweet spot. Filtered > TS5 max drawdown is almost identical at < 22R, again 5.5 R.
Vixen live results can be found here or by going to the following URL:
Currently live results are limited as the live trading signal service was launched on October 26th, 2018.
If you have any questions or suggestions then drop me a line here.
P&L Graphs & Statistics
Testing Period: 2014-02-26 -> 2018-09-18
Total trades: = 1698, Winning Trades = 49%
Expectancy: = 0.32 R
Cumulative P&L in R: 542
Avg. Winning Trade: = 1.57 R
Avg. Losing Trade: = -0.91 R
Max Drawdown (combined): = 37R
Avg max DD per symbol: = 9.25R
Trade Score >= 4
Testing Period: 2014-03-04 -> 2018-09-18
Total trades: = 1370, Winning Trades = 50%
Expectancy: = 0.38 R
Cumulative P&L in R: 521
Avg. Winning Trade: = 1.63 R
Avg. Losing Trade: = -0.92 R
Max Drawdown (combined): = 22R
Avg max DD per symbol: = 5.5R
Trade Score >= 5
Testing Period: 2014-03-04 -> 2018-09-18
Total trades: = 838, Winning Trades = 52%
Expectancy: = 0.45 R
Cumulative P&L in R: 376
Avg. Winning Trade: = 1.68 R
Avg. Losing Trade: = -0.92 R
Max Drawdown (combined): = 22 R
Avg max DD per symbol: = 5.5R
How To Trade VIXEN
VIXEN on average takes 10 minutes max to execute per day. Historically it triggers ~150 times per symbol per year (with 252 trading days on average per year). The four symbols often trigger in relative succession but there are days when only one or two trigger. VIXEN only trades during NYSE hours and always closes out before the session ends (no overnight margin required). Ideal for U.S. and European traders as well as Asian/Australian vampires and insomniacs.
What To Expect?
It’s all very simple actually. As a subscriber you will receive trading alerts and various related updates via email. Our messaging module is simple and has been running LIVE at Evil Speculator for over five years without issues. Whatsapp alerts are planned for early next year.
The alert’s subject line contains crucial information, allowing you to assuring that you are receiving all events in sequence and are getting them in due time:
- VIXEN trading symbol, i.e. VXX, UVXY, TVIX, or SVXY
- Campaign Sequence #
- Time stamp in NY Time.
Entry Alert Example
The timing of your entry is actually not as crucial as you may think. Quite often you will be able to get a better entry than the original alert, and other times it will be worse. Over time it will probably average out unless you wait more than 30 minutes.
Update Alert Example
VIXEN begins to trail after 2R of MFE (Maximum Favorable Excursion). NO thinking/rechecking required – it’s all calculated for you. If you got a different entry simply deduct the difference between the entries from the price levels (okay, so basic arithmetic may be required).
Exit Alert Example
VIXEN always closes out at 3:53pm Eastern (yes, we actually tested this stuff). You have a bit of time before the end of the session but don’t get caught holding overnight.
Stop Out Example
The one we don’t like to see. But you will get them as VIXEN is a 50/50 odds trading system. There’s nothing for you to do as you should have set your stop ahead of time.
Trade-Score notifications are in the works and will soon be added to the entry alerts. Trade scoring allows you to select the risk level you feel most comfortable with. For more information on VIXEN trade scoring please see the P&L graphs shown above.
- You should always take every first campaign of the day at your chosen trade score, no matter what. It is crucial to not ‘pick and choose’ your campaigns.
- You always take the first alert, no matter which symbol, but then have the option to ignore any ones that may follow that day.
- If you don’t get a complete fill on your first symbol then you are free to assign what remains of your max R size to the next symbol that triggers. However that next symbol must trigger first!
- Discretion is only reserved for choosing your VIXEN trade score, i.e. 4 or 5. You are discouraged from choosing it arbitrarily.
- Your max exposure across all VIXEN symbols is always your max risk percentage, i.e. your R size (e.g. 1%).
- Example 1:
- UVXY – entered with 0.5%.
- TVIX – entered with 0.5%.
- Example 1:
- UVXY – entered with 1%.
- TVIX – bought back 0.5% of UVXY and entered TVIX with 0.5%.
Calculating Your Risk
All entry alerts will feature the assumed risk in ticks for the current campaign.
The two pieces of information required to calculate your risk (and R size) are:
- Account size – e.g. $100,00
- Max risk in ticks – as shown in the entry alert.
As a convenience to my subscribers I have produced a very clever VIXEN Risk Calculator which I expect will greatly accelerate your task:
(click on the image to try out the live version)
Enter your account size, e.g. $100,000
Choose your risk ratio, e.g. 1%
Enter the stop loss in ticks, .e.g. 44 ticks
Results: Your risk will be $999.68 when selling 2272 VXX shares.
Pro tip: You have the option to choose another account currency, which will be converted on the fly based on the current exchange rate (updated every few minutes). I built it myself and I still get a kick out of this…
How To Avoid Missing Alerts
You definitely will want to add alerts@evilspeculator to your contact list in gmail and perhaps even create a special tag/folder for it. This reduces the odds of any alerts being labeled as spam. Please see the detailed instructions on the bottom of this page which show you how to create a Gmail label for VIXEN and even how to receive free SMS alerts.
Trading Options Via VIXEN
For most retail traders however, in particular those with accounts < $50,000, buying options or vertical spreads instead of ETP shares directly is the best way to go. I recommend the shortest expiration date you can get your hands on, which either is the current front month or weekly options.
Assuming a long put position on the VXX or UVXY: I would recommend a strike 7% or more ITM, and with the shortest duration possible. This will keep your theta decay and gamma losses low while keeping the number of contracts you can buy reasonably high (thus allowing for higher leverage). Trading soon to expire ITM options gives the opportunitity to somewhat treat your option positions like mini-futures contracts.
Note that the rules for spreads are much tighter for > ITM options.. i.e. once a spread goes OTM, they can widen the spreads substantially. As long as an option stays ITM when it moves against you and hits the > stop loss, you should be getting a good fill. If not then you may want to consider having a chat with your broker.
Be aware that TVIX does not offer options thus I supply the signal for the fortunate few who can actually borrow it. In general you’ll have your pick of the litter as the four horsemen I currently provide signals for (VXX, UVXY, TVIX, and SVXY) tend to trigger very close to each other, empirically I’d say about 65% of the time (I will need to run some stats on that). So you can sort of pick and choose which ones you want to trade. And of course on the SVXY you can go simply long as it’s an inverse ETF.
It is difficult to predict which of the four ETFs will trigger on any day and when. Thus I would suggest attributing your R size (e.g. between 0.25% to 1% tops) to the first signal that triggers (unless of course they come in quick succession, which happens quite a bit). If you then get additional signals you have the option to ignore them, or to simply close out a percentage of the first position and attribute that portion to your new campaign. No matter how you structure yourt exposure – you don’t ever want to assume a max loss of 1R size combined, which at maximum should represent 1% of your account principal.
For example, assume an account principal of $100,000 and an R size of 1%. You are receiving three signals in quick succession: short the UVXY, short the VXX, and long the SVXY. In this case you would spread your max loss of $1000 between those three symbols in any way you want. Please remember that IV ETPs do not move in unison, but are highly correlated by a factor of 0.8+.
Brokers For U.S. Traders
Full disclaimer: I am not currently working with any of the firms suggested in this page, so I do not benefit financially in any way if you decide to work with them.
In order to make life easier (and cheaper) for my subscribers I spent some time researching brokers for U.S. retail traders in particular. At the current time MB Trading and Cobra Trading seem have the best borrow available for short sellers. MB Trading has been acquired and is now a part of Ally Invest. Cobra Trading is an introducing broker for Interactive Brokers, so this means Interactive Brokers usually has pretty good borrow available.
TradeStation and Zacks Trade are popular choices for shorting stocks because of the large number of easy-to-borrow stocks that both of them offer. Moreover, both Zacks Trade and TradeStation offer tiered pricing structures for highly active traders (that would be you if you’re trading VIXEN), where traders can pay per share instead of per trade. This keeps the cost of short selling down to a minimum. Ally Invest offers per trade pricing only, but this isn’t necessarily a bad thing.
Zacks Trade’s per-share pricing starts at $0.01 per share and TradeStation’s per-share pricing also starts at $0.01 per share. This is nice for small share trades, but if you’re trading more than 1,000 shares at a time, on a low priced stock, for example, per-share pricing quickly adds up, so you would want to use a flat base rate of $4.95 ($3.95 w/ promo) at Ally Invest.
A 1,000 share order costs $5.00 at TradeStation and $4.95 at Ally Invest (without including automatic discounts for volume or trading activity). Pricing is a major aspect to take into consideration when choosing a broker for short selling. With per-share pricing, it costs more to short a large number of shares with Zacks Trade than with Ally’s base $3.95 rate. Some brokers also charges fees to cancel/modify orders. Ally does not charge fees for cancelling or modifying orders. Neither does TradeStation or Zacks Trade.
Out of all of the brokers in the US, these are three are commonly recommended for shorting ETPs and individual stocks.
Account minimum: $0.00
Bottom Line: Ally Invest acquired MB Trading (a brokerage dedicated to active traders) in 2015. Out of all of the stock brokers in the US, Ally has the best combination of low commissions and easily shortable stocks.
Commissions: $5.00 per trade
Account minimum: $0
Bottom Line: TradeStation offers a fantastic platform for short selling. There are a lot of easy-to-borrow stocks, a helpful trade desk, and very low pricing.
Commissions: $0.01/share, $3 min
Account: minimum: $2,500
Bottom Line: Zacks Trade is a professional broker for serious short sellers. Commissions are dramatically cheaper than Interactive Brokers, the customer service is better, and you’ll still get access to a large list of easy-to-borrow stocks.
If a particular stock does not have a lot of available shares to short, it will be classified as “hard-to-borrow” (HTB). Due to their popularity among both retail and institutional traders IV ETPs are often classified as HTB and thus your broker will charge you a small fee. Keep in mind that this is entirely broker related and thus the VXX for eacmple may be hard-to-borrow at one broker and easy-to-borrow at another. Meanwhile the UVXY may be easier to borrow at the first broker. Although IV ETPs are universally more difficult to borrow, this characteristic is entirely set by the broker.
A hard-to-borrow fee is not the only number you should look at when selecting a broker for short selling. You need to look at the minimum requirements to open a margin account, because a margin account is required for short selling, especially when it comes to IV related ETPs. It is quite possible that elevated margin requirements of your current broker (as e.g. those over at Interactive Brokers) will force you to move to a more reasonable competitor.
A Few Pointers
Alright, before you jump the gun and sign up – here are a few pointers:
- I strongly recommend that all VIXEN subscribers refrain from using the following webmail providers: Yahoo/Hotmail/AOL/Verizon/ATT/MSN. If you do use one of those then hop over to GMail and sign up for a free email account. Google may be evil but Gmail still has the best spam filtering on the planet and thus far there have been few issues with folks receiving our alerts.
- You definitely want to add the following addresses as an email contact and if possible add them your white list:
- I recommend creating a special email label (in Gmail) or folder so that all VIXEN alerts are easily and quickly accessible. This will also make it easier to assure that you are receiving all events in sequence.
- You know the old mantra: Past performance is no indication of future success. We have tested the crap out of this thing and have great hope that it will continue to perform but as you know – black swan events happen and when it comes to trading there are no guarantees.
- There will be days when VIXEN does not get an entry trigger – please do not send me constant emails asking me why it’s not trading today unless it’s been at least several days without receiving signals. The system is the system and it’s possible to have a straight up or straight down day and there are not trades being taken. On average there is about one trade every two days.
I usually recommend Gmail as an email account as it’s most reliable and also the fastest. I also suggest that you create a special label (i.e. folder) in your Gmail settings. As a side benefit this will also prevent Gmail from labeling any VIXEN alerts as spam. Consider this your 10 step program to getting your VIXEN addiction under control:
1) Log into gmail (that’s the easy part)
2) Click on Settings:
3) Click on Labels:
4) Click on ‘create new label’ near the bottom of that page:
5) Call it ‘VIXEN’ and click on ‘create’:
Note: If you want to receive free SMS alerts via IFTTT.com then you need to label the alerts ‘VIXEN’ in upper case. If you want to call it anything else then you also need to update the label in the IFTTT recipe. I hope that is clear.
6) Click on Filters:
7) Click on ‘Create a new filter‘ which you’ll find near the bottom of your Gmail filter list.
8) In the popup panel add as the sender (from field) and the words ‘VIXEN Alert’ in the subject’s ‘has the words’ field:
9) Click on ‘create filter ‘.
10) Select the right label (i.e. folder) to link it to:
Here I’m adding a star to the alert and I’m also selecting ‘never send it to spam’ for obvious reasons.
10) You are done! In the future all your alerts will be placed in your VIXEN folder.
1) If you have not done so already, create a Gmail filter label called ‘VIXEN’ – instructions here:
2) Point your browser to http://ifttt.com.
3) Click on ‘join’ in the top right corner:
4) Select a username, email address, and password:
5) That is it – now click on this link.
5) Activate Gmail and SMS further below on that page. The process is easy and pretty procedural. Takes two minutes max.
6) Press ‘use recipe’.
6) That is it – you are done. From now on you will receive any Gmail messages labeled ‘VIXEN’ via SMS. Isn’t that cool? 🙂
Tip: If you ever want to change your SMS number at IFTTT simply go here. EASY!