VIX Vol Edge

A long position in the inverse VIX ETF that harvests the structural volatility risk premium, with exposure scaled down as risk conditions deteriorate. A hard circuit-breaker moves the strategy fully to cash during volatility spikes and does not re-enter until conditions normalize.

The edge is the structural tendency of implied volatility to overstate realized volatility. The circuit-breaker is designed to avoid the catastrophic drawdowns that have historically hit short-volatility positions during vol spikes, the failure mode that has wiped out naive short-vol strategies.

Backtested from 2012 to present. The 30% CAGR and 1.15 Sharpe come with a 31% max drawdown, most of which occurred during the 2018 vol spike and the 2020 COVID crash. The strategy survived both because the circuit-breaker flattened before the worst of the move.