About this template
Here is a completely untested and unproven bot template that I put together. I suggest that this should only be paper traded, at least until you personally have run it through some higher volatility periods in the markets to see how it performs. The goal is that this can be used as a hedging bot.
- The strategy is to enter 0.40 delta, $10-wide, 80-110 DTE (or 60-80 DTE if the former DTE is not available) short call spreads when certain RSI, CCI, and MFI technical indicator criteria is met in VXX. Exit Options are set to take profits early at 50% of credit. A bot allocation minimum of $10,000 or more is suggested... but down to $5,000 might work?
Basically, the bot looks for "overbought" conditions in VXX then enters a wide, long-term contrarian vertical spread when those conditions are met. The criteria would only be triggered during a high volatility event when VXX is spiking. The bot looks to "ladder" trades every other day as long as the criteria continues to be met.
When volatility increases, then VXX spikes... then when vol starts dropping again, VXX starts dropping with it. The short call spreads would be entered during high VXX spikes, and the goal would be to profit from the drop in VXX as volatility ostensibly settles down over time and reverts to the mean and/or as time premium decays.
Scans based on VIX range filters to enter the VXX positions, as follows:
- When VIX is between 0-35, then bot uses the entry criteria of VXX RSI(14)>60, CCI(20)>150, and MFI(14)>67
- When VIX is between 35-60, then the bot uses the entry criteria of VXX RSI(14)>70, CCI(20)>200, and MFI(14)>70
- When VIX is between 60-100, then the bot uses the entry criteria of VXX RSI(14)>80, CCI(20)>200, and MFI(14)>80
** The goal in having these VIX range filters is to auto-adjust the entry criteria higher when VIX, and correspondingly VXX, is spiking higher **
Note, that this bot will remain dormant for extended periods of time (maybe weeks, maybe months, maybe even years... but probably not years lol), then "wake up" when volatility spikes to a high degree, so it will enter into very few trades overall and is not meant to produce regularly recurrent profits. The overall aim of this strategy, of course, is to offset potential losses that might occur in other trades in other bots during the high vol event by getting some sizable gains in these VXX positions.
The generic backtest results, which are quite promising on paper, are posted below. However, backtesting results, of course, must be taken with a grain of salt, as live trading can be very different. Also, only 10 trades were shown in the backtest, so that is a quite small dataset from which to draw major conclusions.
The remainder of the RSI/CCI/MFI entry criteria parameter assumptions were made by overlaying the VIX chart into the VXX chart in TradingView and then pinpointing entry points by reading the RSI/CCI/MFI indicator values that occurred during the historical spike periods and how those values corresponded to VIX readings.
The -.40/.15 delta entry is Test A, and the -.50/.15 delta entry is Test B. I chose to setup the bot with a .40 delta short strike so as to avoid potential assignment and to keep the max risk a little smaller per trade to allow for easier laddering and scaling.
Backtest results:
Test A Entry/Exit Criteria:
Test B Entry/Exit Criteria:
