Today, we are doing a VTS Review.
Brent Osachoff is a professional golfer turned volatility options trader.
He has a subscription-based service at volatilitytradingstrategies.com, which includes a free 2-week trial.
It is this product that we are reviewing today in this article.
His portfolio consists of 5 tactical strategies (with a 20% allocation for each strategy):
- Defensive Rotation Strategy
- Tactical Volatility Strategy
- Strategic Tail Risk Strategy
- Volatility Trend Strategy
- Iron Condor Strategy
We all know what the 5th strategy is.
The other four strategies are the names Brent gave to his various methods of trading option volatility.
He will tell you when he enters and exits any strategies if you sign up for the service.
He calls it the “VTS trade signal service” rather than “trade alert.”
It is not like you get a “ding” on your phone, and then you have to rush to your computer and put in the trade.
No, no.
It is just an email sent out before noon Eastern time every trading day.
You can put in the trade any time that trading day.
And it should only take you a few minutes to do so.
You will still get an email if there is no trade that day.
It will just say zero trades today.
We will hereafter call this the “daily email,” even though it is not “daily” in the sense of every calendar day.
It is every trading day.
Contents
VTS Volatility Barometer
In the daily email, you will see a diagram of a color-coded circular gauge showing whether we are in low, mid, or high volatility.
This is his own proprietary “VTS Volatility Barometer,” consisting of a formula considering over a dozen volatility metrics.
Like a gauge, it goes from 0 to 100% to tell you whether the market is in a high, mid, or low volatility environment.
He says in a public YouTube that the Volatility Barometer:
“Is the best measure of market volatility that you will find anywhere.”
Volatility traders will use this Barometer in various ways to help them trade volatility strategies.
Even for long equities traders, he says that exiting long stock positions when the Barometer goes above 50% will help you avoid big market crashes.
Strategic Tail Risk Strategy
As an example of how this Barometer is used, we will look at the Strategic Tail Risk strategy first because this strategy uses the VTS Volatility Barometer most directly.
If the Barometer shows 0% to 55% volatility, then the Tail Risk strategy will be long stocks by holding SSO (the 2-times S&P 500 ETF).
If the Barometer shows a 55% to 80% range, the strategy switches to a more conservative IYR (Real Estate ETF).
If the Barometer shows extreme volatility above 80%, the Tail Risk strategy goes long by holding VIXM (VIX mid-term futures ETF).
Defensive Rotation Strategy
The Defensive Rotation strategy does not use the VTS Volatility Barometer directly.
It uses another set of volatility metrics to provide diversification in different strategies.
The strategy rotates the holding from VGLT to QLD, XLU, and cash as the volatility goes from low to high.
VGLT is the Vanguard long-term treasury ETF.
QLD is the two-times Nasdaq ETF.
XLU is the utilities ETF.
In extreme volatility, this strategy exits holdings and sits in cash.
Tactical Volatility Strategy
Now you have an idea of how the VTS strategies work.
They match the best asset class for the given volatility regime.
The Tactical Volatility strategy is no different.
Depending on the metric signals, it either sits in cash, goes long volatility, or goes short volatility.
Volatility Trend Strategy
This strategy shorts volatility, meaning that it benefits if volatility drops.
Brent believes that shorting volatility is the correct side to be on.
But he often reminds people in his YouTube videos that it is a dangerous game if you do not know what you are doing.
It is a good thing that he knows what he is doing, and he has been doing it safely and consistently for many years.
He uses defined-risk structures (such as directional butterflies on VXX) so that spikes in volatility do not become dangerous and the loss is contained.
These structures are low-cost but can have high rewards.
So it is possible to make a lot more than the possible loss.
Iron Condor Strategy
As part of the daily email, you get his signals for entry and exit to iron condors.
It helps to know how he trades iron condors.
So as a value-added bonus to subscribers, they get his iron condor course, which consists of bite-size videos totaling about 4 hours.
He starts each lesson with a quick one-sentence recap of the previous lesson.
Repetition helps with retention.
The quality of the videos is very good, and I can only imagine the time spent on video editing.
The camera shots, graphics, charts, screen captures, and animations are of very high quality.
I don’t know if he had video editing help or whether he did them himself.
But he has mentioned that he works a lot to the point of being a workaholic.
So I wouldn’t be surprised if he did them himself.
His iron condor strategy is a no-adjustment iron condor placed with the shorts at 15-delta and expiration two months out.
Take profit at 50% of the credit received.
Mental stop loss at the same dollar value.
He trades them on highly liquid ETFs (such as SPY) and will layer up to three condor trades simultaneously for diversification of price and expiration.
He does not enter trades in strong trends and does not enter trades in low volatility environments.
In periods of low volatility, he enters a calendar instead and trades it similarly to how he trades iron condor.
But the take profit and stop loss are different.
How does one know if it is in high or low volatility?
The VTS Volatility Barometer, of course.
But if you can’t access that, you can just use the VIX.
The course contains a bit more information on a few other topics I have not mentioned here.
I haven’t given away any member-only information.
Everything that I have mentioned can be found on his public YouTube – especially this one that summarizes his iron condor strategy.
The course is for newer iron condor traders that want in-depth fundamental knowledge such as the tradeoff and benefits of wider and longer-dated condors, and so on.
If you understand everything I said, you probably already know iron condors.
You will not find iron condor adjustments in the iron condor course because he doesn’t believe in adjusting iron condors.
The way he is layering multiple iron condors and setting early stop exits, I agree that this style of trading iron condors does not require adjustments.
Sometimes it is better to exit a bad position to reclaim the capital to reset a new starting condor rather than fight the market.
However, I do not agree with his view that all iron condor adjustments are useless.
My view is that some valuable iron condor adjustments can benefit the position if done correctly and in a timely fashion.
So now you have an idea of his five strategies in which he will provide you trade signals should you decide to sign up for membership.
Frequently Asked Questions
Can I take the free trial just to watch the iron condor course and then unsubscribe?
I suppose you could.
What is the rate of return of the VTS Iron Condor strategy?
According to Brent’s video, it returned on average 18% per year based on 10+ years of data.
The maximum monthly drawdown was 15%.
The average of the three largest drawdowns is 11%.
When the rate of return is greater than the max drawdown (which it is in this case), it is considered good.
Why did this review go in-depth into the iron condor strategy when four other strategies only have a cursory overview?
Since the other four strategies are short volatility strategies, while I agree with the concept of shorting volatility and will occasionally do it, I am not a specialist in volatility trading like Brent is.
However, the iron condor is one of my bread-and-butter strategies, and I am always interested in seeing how other people trade them.
What does “tactical strategy” mean?
Brent always uses the word tactical, as in the VTS Tactical Volatility Strategy.
Tactical strategy means getting in and out of a position based on the market environment and other metrics.
It is the opposite of “buy and hold,” where you enter and hold a position as long as you can, regardless of what happens in the market.
If you follow Brent’s work for any length of time, you will realize that he is not a fan of “buy and hold.”
Therefore, he is “tactical.”
Does that mean that he can time the market?
In a sense, yes.
In reality, he is timing volatility, which many believe is easier to time than timing prices.
Brent has collected a huge amount of volatility data and metrics that he used to develop models that help him time volatility.
He has been doing this for over a decade.
Is Brent a discretionary trader?
With the understanding that there is always some discretion in trading, I would say that Brent is more of a non-discretionary trader than a discretionary trader.
There is very little discretion in the trade signals.
It is not like, “Oh, I think volatility will go down today.”
He inputs a whole bunch of volatility data into his spreadsheets daily, and proprietary formulas tell him the signals.
And then he trades those signals.
That’s it.
There might be some discretion in the iron condor strategy regarding when to enter them when to layer them, and on which ETF.
But the management of the trade is very rules-based.
There is no discretion in adjustments because the iron condors are never adjusted.
Once in an iron condor trade, the P&L number tells you whether or not to exit the trade.
There is no other number to look at.
There is no other decision to be made.
There is nothing else to think about.
What else does the VTS membership include?
The iron condor course comes with the iron condor spreadsheet with calculations.
The daily signal email includes the Volatility Dashboard with values for the Cash VIX oscillator, M1:M2 VIX futures, VX30:VIX roll yield, M4-M7 VIX futures, VIX:VIX3M Crossover, VRP, and more.
It also includes the crush and surge levels for VXX, UVXY, UVIX, SVXY, and SVIX.
Conclusion
This is a great way to trade – just follow a few simple rules and just do what the rules tell you.
It takes the guesswork out of trading.
It takes the emotions out of trading.
And it takes the stress out of trading.
There is only one problem.
You have to have confidence in the rules for you to be able to follow them (especially when the strategy is in a drawdown period).
Brent has no problems following his rules because if you watch him talk, you can see he has full confidence in his rules.
After all, he designed them.
The only question is, do you have confidence in Brent’s rules?
For those interested in trading volatility, I would encourage you to watch his YouTube channel, read his blog, and even try his free trial to help you answer that question.
Brent’s iron condor course is a great start for those new to iron condors.
Take his free trial to be able to go through the iron condor course and even follow a few of his iron condor signals.
Even if you have to pay for one month of membership, that course is well worth it.
We hope you enjoyed this article on our VTS review.
If you have any questions, please send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
