Adaptive Volatility Edge Strategy

OVERVIEW

The Adaptive Volatility Edge strategy capitalizes on the analysis of term structures, allowing for strategic positioning based on market conditions. Additionally, it takes advantage of the mean-reversion tendencies commonly observed in volatility markets.

Under normal circumstances, equity markets tend to exhibit a gradual upward drift with occasional minor corrections. In such environments, the term structure of VIX Futures typically assumes a Contango shape. This means that nearer expiries are perceived as more predictable, while uncertainties increase as we look further into the future. In this scenario, profits can be generated by taking covered short positions in VIX Futures, as they gradually decline along the curve, unless there is a substantial increase in volatility.

Conversely, when equity markets experience significant turmoil, such as a market crash, the implied volatility of options tends to surge. This spike in volatility causes the term structure to shift into a state known as backwardation.

We believe that diversification matters

During typical market conditions, equity markets tend to exhibit a gradual upward trend with intermittent minor corrections. This upward trend is often characterized by periods of low volatility, as measured by the VIX (Volatility Index).

Our Strategy

Portfolio Advantages

Our strategy aims to deliver economically sustainable, long-term outperformance for our investors with multiple potential portfolio benefits.

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Portfolio Hedging

The VIX Index has had a historically strong inverse relationship with the S&P 500 Index. Long exposure to volatility may offset an adverse impact of falling stock prices. Adding a VIX trading strategy to your portfolio can have the potential to provide tail risk hedging benefits.

Long/Short Volatility

Including VIX futures in your portfolio provides a direct exposure to the anticipated level of volatility. This exposure can be considered an asset, enhancing the diversification and risk management capabilities of your overall investment portfolio.

Term Structure Trading

This diverse selection provides our investors with ample opportunities our systems can capitalize from, allowing for strategic positioning based on anticipated levels of implied volatility. The availability of multiple contract expirations enhances flexibility in managing positions and capitalizing on potential market opportunities.

Risk Premium Yield

By utilizing VIX futures, our investors gain diversification within various volatility trading and arbitrage strategies. These strategies enable our investors to exploit volatility-related opportunities and optimize their portfolio diversification.

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