r/letfs
Using VIX/ IV from options to deleverage
Author asks if anyone has backtested a LETF deleveraging strategy using VIX or options IV instead of the 200-day SMA to mitigate volatility drag.
Has anybody backtested a strategy where you deleverage using the expected volatility from say the VIX or implied volatility from options? The whole premise of the SMA 200 strategy is that below this trend line volatility goes up, hurting leveraged strategies through volatility drag. Now if this is sound it should work the same way if you use other volatility measures like the mentioned. Otherwise this would speak in favor of the SMA strategy being an overfit, like HFEA is.
Has anyone tried out such a thing? I don't have the data nor the time to backtest but I just wanted to share maybe someone knows more.
I run a VIX defensive throttle when in risk on. After the day's close, if VIX > 30 AND SPY close < SPY SMA50 then I exit during the next open for 1 day. If conditions persist after the next day's close then I remain risk off one day at a time, otherwise back to risk on.
And how is that working for you?
You’ll probably get similar results with the same issue: you will often sell at a lower price than you buy back in at, and rely on long periods of low volatility to get an acceptable return.