VIX Futures Spread StrategyThis script was an exercise in learning Pinescript and exploring the futures curve of the VIX in relation to SPY. Was deleted by TV, trying to republish it now with updated parameters for slippage and commission and a more detailed description.
"VIX Futures Spread Strategy" is a trading strategy that capitalizes on the spread between the 3-month VIX futures (VIX3M) and the spot VIX index. This strategy is based on the idea that the VIX futures spread can serve as a contrarian indicator of market sentiment, with extreme negative spreads potentially signaling oversold conditions and opportunities for long positions.
Ordinarily the VIX curve is in contango as futures contracts are priced at a premium to the current spot price and are used to hedge future uncertainty in the market. When the spot price of VIX spikes the curve can invert and enter backwardation; this strategy detects this condition and uses it as a trigger to open a long position in SPY. The spread going negative tends to correlate with excessive fear and uncertainty in the short term while expecting lower volatility in the long term, in this case 3 months out.
The strategy is designed to enter a long position when the VIX futures spread is negative and to exit the position when the spread rises above 3 -- when the curve is in contango again. The strategy employs a pyramiding approach, allowing up to 10 additional orders to be placed while the entry condition is met, with each order consisting of 10 contracts. This approach aims to maximize potential profits during periods of favorable market conditions.
In this strategy, the VIX futures spread is calculated as the difference between the 3-month VIX futures (VIX3M) and the spot VIX index. The spread is plotted as a histogram on the chart, with the zero line representing no spread, and horizontal lines at 0 and 3 indicating the entry and exit thresholds, respectively.
The strategy's backtesting settings use an initial capital of HKEX:10 ,000, a commission of 0.5% per trade, and a maximum of 10 pyramiding orders, and a slippage of 2 ticks.
Please note that this strategy is intended for educational purposes and should not be considered as financial advice. Before using this strategy in live trading, make sure to thoroughly test and optimize its parameters to suit your risk tolerance and specific trading conditions.
Vixfutures
VIX futures Backwardation/Contango strategyVery basic strategy that goes long on a VIX ETF whenever the futures curve shows signs of backwardation and gets out when it shows signs of contango. Makes no effort whatsoever to avoid getting faked out by monthly futures rollover.
Surprisingly good at not incinerating money while still providing diversification benefits in a long SPY portfolio. Useful for demonstrating the benefits of including VIX futures to hedge an actively managed portfolio.
Can be set to get out if the VIX goes below the lowest value of the last 3 candles, in which case it spends less time in the market but seems to actually make a bit of money over the past decade, though the only intent of this script is to make it not lose money.
