Why VIPER works ...
- It’s fact based. It focuses on the fact that the VIX is mean reverting, and that it more often than not will take an organized approach back to baseline (after spikes).
- It’s stubborn, but cautious. It seeks to identify market environments where the conditions are conducive for a volatility “spike”, or if the spike has occurred, if it’s best to get to the sidelines.
- If #2 has proven true, it makes this determination quickly, which leads to point 4.
- It’s willing to step out for a bit and wait for the spike to begin to heal.
- When the spike begins to heal, it’s back in the ring.
- It averages 1.2 trades per month!
Advantages of VIPER Over Other Volatility Trading Strategies
Absolutely there are distinct advantages to trading the VIPER strategy. The most prominent would be the overall lack of trading involved in implementing this strategy. It is easy to fall into the trap of trading too much. The costs, management, time commitment, etc., add up quickly. VIPER has generated < $350 in TOTAL commissions since inception!
We let the product do the “options trading”. VIPER has similar characteristics to trading options with a short volatility bias. However, actually engaging in options trading effectively and with equal returns as VIPER will cost far more in commissions and is usually beyond the scope of even sophisticated retail investors. This would involve much more position management, portfolio tracking, margin, software and an enhanced account. Most importantly, VIPER is inherently less risky – the strategy is never short contracts. This is a welcome sign to your broker and ultimately to you.