
Efficiently Harvesting VRP
I own a diversified portfolio holding equities, fixed income, and liquid alts. I’m looking to add exposure to systematic VRP harvesting.
I’m comparing approaches to implement this. I’m considering a strategy of holding short VIX ETFs (like SVIX) when the VIX term structure is in contamgo, and switching to long VIX ETFs when the curve enters backwardation. This strategy is outlined in a paper by Concretum Group (https://concretumgroup.com/the-volatility-edge-a-dual-approach-for-vix-etns-trading/).
What I like about this approach is it is easy to implement (trade 2 ETFs) and simple to replicate the backtest (VIX, VIX3M, SHORTVOL, and LONGVOL index data is free). Backtested Sharpe ratio is somewhere between 0.8-1.0.
However, I’ve seen other traders design custom processes where they harvest VRP by shorting individual options contracts either via straddles or iron condors. Then they also delta hedge with the underlying. They report far smoother equity curves (example: https://m.youtube.com/watch?v=MAQBCz9ChkY&ra=m), but going this route seems like a steep learning curve.
Wanted advice from other experienced volatility traders. Is a purely VIX ETF based approach to harvesting VRP a realistic option, or should I delay implementation until I‘ve developed the skills and tech to manage an options portfolio.