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Questions for Reproducing a Short VXX and Long VIX Futures Hedge

Article Quant Q&A · Author: Xun Bao
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Summary

The document asks how to reproduce a volatility strategy described in a referenced study: short VXX while holding a long position in a VIX futures contract. It proposes that the combination may isolate exposure to a later futures month, asks how many VXX shares to short, and raises questions about rolling the futures position and interpreting market neutrality and beta.

No answer, position-sizing rule, hedge ratio, or reproduction procedure is included. The document therefore identifies the key implementation questions but does not establish that the proposed legs create the stated exposure or a market-neutral portfolio. A replication would need the source’s precise contract definitions, dates, sizing method, rebalance and roll rules, and return assumptions; none are supplied in this text. Its usefulness is as a checklist of unresolved modeling and hedging issues, not as a complete strategy specification.

Key ideas

  • The proposed trade pairs a short position in VXX with a long VIX futures position.
  • The document asks whether the combination isolates exposure to a later futures contract month.
  • It leaves the VXX share count and futures hedge ratio unspecified.
  • Rolling rules and the meaning of market neutrality or beta neutrality remain unanswered.
  • The text does not provide enough detail to reproduce or evaluate the strategy.

Tags

VolatilityFuturesRisk managementPosition sizing
Full text
# Need some suggestion about short vxx long vx future strategy


# Need some suggestion about short vxx long vx future strategy












I read a post by M. Avellaneda trading volatility

At page 59-62 there's Strategies with VIX futures to hedge short VXX I'd like to reproduce the result. I am not sure how to do it. Some key points are

- I guess the strategy short vxx and long front month vx future so it only has exposure to second front month future.

- maintain a long vx future position(roll monthly)

- but how many vxx shares to short ?

- In this scenario how to maintain market neutral? should I keep beta of vxx+ beta of vx futures = 0 ?

- what does market neutral, positive beta supposed to mean?

Could someone give me some outlines what to do plz ?

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.