This an algorithmic trading strategy that trades short trending moves in volatility ETF’s. It is simple, elegant, and it’s core alpha comes from what is invisible, but in plain site.
Since 2022 the 2 variations have averaged over 35% annual returns with drawdowns in the 20% range. The strategy has done well through the mini-bear of 2022, and through the volatility of the early-2025 market and in addition to significantly outperforming during calm markets.
More importantly, there is essentially zero correlation with the overall market.
Some features of the strategy
Only has about 50% exposure
Outperforming results with above 35% CAR
Can be traded with just a few minutes a day
2 portfolios to choose from
Uncorrelated to the S&P 500
Trades liquid ETF’s
How did this strategy come to be….?
There always seems to be runs of either increasing or decreasing volatility. Most of the time this is not the case, and volatility is just moving with the real volatility of the market. But there are times when the indicators line up, and we’ve found that when they do—volatility is often about to make a run either up or down. Often in very brief time periods. The moves can be very large and although only a little more than half of the signals are correct, when they are correct, it more than pays for the losing trades. This was a unique behavioral find by Cesar.
Why You Should NOT Trade Shadow Vega
Test period starts in June 2022. Very limited time.
Can not test longer because can not create synthetic data
Volatility ETFs can have very large moves or even stop trading
Why Cesar & Steven Are Trading Shadow Vega
Concept is sound & simple
Only two parameters
Results are stable around the parameters
The market has had variety of volatility situations since 2022
Testing period is from June 1, 2022 to March 31, 2025 and metrics are updated after the end of each quarter.
Live trading signals have been published on the site since May 2025. You will have access to all entry & exit signals since then.
Portfolio 1 – Alpha
This simple strategy uses two parameters. In this version the parameter value is the same between SVXY & VIXY. Cesar likes this because it is ‘simpler.’ Allocation is 100% of the account to SVXY trades and 50% of the account to VIXY trades.
Portfolio Statistics
39.9% Compounded Annual Returns
51.1% Exposure
1.46 Sharpe Ratio
Top three drawdowns(-19.2, -9.5, -7.6)
-9.4% Worst 3 month return
+14.0% Worst 12 month return
+30.7% Best 3 month return
+96.6% Best 12 month return
0.08 correlation with the S&P500 index
Trades Statistics
140 Trades with 55.8% winners
3.76% Average % profit on winning trades
-2.25% Average % loss on losing trades
3 Average trading bars held
-9.5% Worst trade
66.1% Best trade
Maximum of 1 positions
Equity Curve since 2022
Monthly Returns
I have over a decade of quant trading experience and am the Chief Investment Officer for a quant-based advisory firm. I’ve known Cesar for 8 years and he is my first and foremost “go-to” resource for financial markets research, quantified strategy development, and coding. Unlike some theoretical “quants,” Cesar is also a trader. He understands the markets and the real-world limitations of broker order offerings, liquidity, and order placement. Rob Davenport, LCA Capital, LLC
Portfolio 2 – Gamma
This simple strategy uses two parameters. In this version the parameter value is the different between SVXY & VIXY. Steven prefers this one because more exposure to VIXY, which has the potential for large gains. Allocation is 100% of the account to SVXY trades and 50% of the account to VIXY trades.
Portfolio Statistics
43.5% Compounded Annual Returns
51.8% Exposure
1.62 Sharpe Ratio
Top three drawdowns(-19.2, -8.5, -7.6)
-9.4% Worst 3 month return
+22.3% Worst 12 month return
+32.5% Best 3 month return
+100.68% Best 12 month return
0.05 correlation with the S&P500 index
Trades Statistics
150 Trades with 56.0% winners
3.75% Average % profit on winning trades
-2.22% Average % loss on losing trades
3 Average trading bars held
-9.5% Worst trade
66.1% Best trade
Maximum of 1 position
Equity Curve since 2025
Monthly Returns
There’s no way I’d be professionally managing money today were it not for the professional advice and help of Cesar Alvarez. I’ve yet to meet a trader/researcher with such a superb understanding of the markets; as well as the dangerous trapdoors that await if you decide to develop your own quant system. Mark Angil, Architect of Midway II, 1st Place Winner of BattleFin’s Sharpe Ratio Shootout International Quant Finance Tournament 4.0 (Pro Division)
Start your free one week trial
During your trial you will have access to all previous trades and commentary. Cesar or Steve are available to answer your questions.
I have been corresponding with Cesar and following his work for several years. His research is first rate and his reports are clear and unambiguous. He is an expert trading system developer and programmer. Most importantly, he has discovered profitable and persistent patterns, and developed profitable and practical trading systems around them. Dr. Howard Bandy Recognized Quant Author
The Researchers
Cesar Alvarez
Cesar is well known in the quant community from his trading blog, Alvarez Quant Trading, where he shares his trading insights and research. He also consults with traders to test their trading ideas and help them improve their current strategies. From 2004 to 2013, Cesar was the Director of Trading Strategies at TradingMarkets.com and Connors Research. Cesar has also developed many strategies for private equity funds, is the author of multiple books on trading, and — in a former life — was a Software Engineer on the early versions of Microsoft Excel. After so many years developing well over 100 different methodologies, Cesar, like many true masters of his profession, has come back to the point of ultimate simplicity and efficiency as the best sustainable approach to active trading.
Steven Gabriel
Steven has an extensive history trading equities, options, futures, and volatility. For the past 13 years he has been a quant-based trader, working alongside Cesar on research for 100’s of different ideas, concepts, strategies, and systems. Steve is also an Emergency Room physician. But he only practices medicine half-time now, because his success in trading financial markets.
