Gyroscopic Investing

I'm not really a variable portfolio guy, but am curious anyway...

Has anyone thought about a VP that makes use of the VIX (ticker VXX)?  Was thinking maybe something like 90% VTI  10% VXX using bands to rebalance. 

I wonder how VIX compares to a LT treasury and gold duo.

I didn't backtest the numbers, but from the chart VXX has certainly taken a dive since 2009.  Opposite of gold and treasuries.

Clive wrote: If anything short selling the short VIX (XXV) might be the better choice if you entered that realm.

Don't worry.  I barely even understand what the VXX is.  This is strictly academic. 

I was going to start a new thread, but noticed AdamA had already created this one on the VIX.

I have been spending a little time researching options and during this I noticed that the VIX can be an extremely useful tool to judge the risk/reward of holding SPY.  Typically a reading above 30 on the VIX indicated that the market is entering a period of high volatility and from what I have seen the volatility is to the downside.  For example, selling above ~30 and then buying when it falls back to ~25 means you would have sold in mid-September 2008 (SPY=152) and then bought back in mid-July 2009 (SPY=95).  I would have a smile from ear to ear if I had pulled that trade off.

The other periods of high VIX are not as dramatic, but in general SPY will move sideways or down.

From an options standpoint this makes sense since once the VIX moves above 30 then the risk/reward of holding a long call is not justified, since volatility is likely to drop (significantly?) over the next few months.  Volatility could continue to spike, but the risk/reward is not worth it, IMO.  This causes downward pressure on the SPY, since option traders will shun long calls.

A good strategy would be to switch to cash when the VIX moves above 30, then let it throw its temper tantrum, and then buy back in once it calms down.

Has anyone else looked at this?

Here's a chart of the VIX

True.  But I'm simply trying to reduce risk.  My goal is to buy-and-hold SPY, although it may not be wise to hold it when the VIX is telling us that there is a high risk of things going screwy.  If this strategy could help prevent me from enduring at least one market crash then it'd be worth it.

I don't want to profit from the eventual fall in volatility (I'll leave that to the pros), I just want to be safely hiding in cash.  I'm still an infant when it comes to the options market...I may be able to join the war at some point.

This tested horribly on etfreplay.  I tried different weightings and rebalance time frames.  I think using EDV or TLT is a much better way to go