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Thursday, May 23rd 2019

VIX Level Trigger in Backtesting

How to use the level of VIX, or any symbol's price, to drive options trading in a backtest by using Entry and Exit Triggers to enter, exit and re-enter.

Summary

This article explains how to use the level of VIX, or any symbol's price, to drive options trading in a backtest by using Entry and Exit Triggers to enter, exit and re-enter. By setting the Entry Trigger to 'Max = 15' and the Exit Trigger to 'Max = 20', the backtest will only enter trades when the VIX is below 15 and exit if the VIX is above 20. The article also notes that the pxAtmIV is the spot VIX and the EntryStockPx & ExitStockPx in the trades section is the VIX future for the expiration solved at the time of the trade.

Here's how to use the level of VIX, or any symbol's price, to drive trading in a backtest by using Entry and Exit Triggers.

Let’s say you only want to enter a VIX trade with the VIX price below 15 and you would exit if it gets over 20 and wait until under 15 to re-enter. In our backtester the header pxAtmIV is the price of the stock taken when the options snapshot is taken. Set the Entry Trigger to 'Max = 15' and set the Exit Trigger to 'Max = 20'. That will drive the backtest to only enter trades when the VIX is < 15 and exit if VIX is > 20.

Here's what the backtest input form looks like for the Entry Trigger:

 

Here's what the backtest input form looks like for the Exit Trigger:

 

Click Submit and check the results. The trades should only enter when the VIX is < 15 and should exit when the VIX is > 20.

 

Note that the pxAtmIV is the spot VIX and the EntryStockPx & ExitStockPx in the trades section is the VIX future for the expiration solved at the time of the trade. So the EntryStockPx may be above 15 and the ExitStockPx may be below 20 when trades occur but the spot won't be.

For example, look at thetrade on 3/13/12: the EntryStockPx was 21.03 but why was the trade entered? Because the SpotPrice was 14.8 and the 21.03 was the associated futures price with the 4/18/12 expiration of the call.

 

More reading:

 

 

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