Volatility Regime Mean-Reversion Model
Elastic Sigma is currently in the research and development phase.
This systematic volatility model is undergoing rigorous testing and validation.
The strategy exploits mean-reversion dynamics in volatility markets through daily signal-based rotation between volatility ETF positions.
Partners interested in early access to model documentation should contact us directly.
Elastic Sigma is a systematic volatility regime strategy designed to exploit the natural mean-reverting behavior of volatility markets.
The model dynamically rotates between four distinct positions—shorting volatility (31%), long volatility (20%), tail risk hedge via protective puts (5%), and short duration bonds or cash (44%)—based on daily proprietary signals and term structure analysis. The strategy includes a strategic tail risk hedge component using overnight protective puts on the S&P 500 through the CAOS ETF from Alpha Architect, providing downside protection during extreme market events.
8.5
Avg Trades/Month
31%
of time Short Vol
20%
of time Long Vol
5%
of time Tail Hedge
44%
of time Bonds/Cash
2x
Up to Twice Daily
The Elastic Sigma model employs a systematic approach to volatility regime identification, using term structure analysis as the primary filter for position direction.
The model continuously monitors the volatility term structure, distinguishing between contango (normal) and backwardation (inverted) states to inform directional bias.
The model allocates to one of four positions: shorting volatility (31%), long volatility (20%), tail risk hedge (5%), or short duration bonds/cash (44%) based on regime classification.
Maintains a strategic allocation to protective puts on the S&P 500 using the CAOS ETF from Alpha Architect. This overnight-only hedge provides downside protection during extreme market events.
Approximately 44% of the time, the model allocates to short duration bonds or cash, preserving capital during unfavorable volatility conditions.
All positions are implemented through liquid ETFs, including the CAOS ETF for tail risk hedging, ensuring transparent pricing and straightforward execution.
Elastic Sigma is designed with institutional-grade risk management and transparent execution at its core.
The strategy rotates between shorting volatility, long volatility, tail risk hedge, and short duration bonds/cash. Includes protective puts via CAOS ETF.
Signals are generated at market close with rebalancing executed at the following day's open, averaging 8.5 trades per month.
Strategic 5% allocation to overnight protective puts on S&P 500 using CAOS ETF from Alpha Architect for downside protection during extreme events.
Unlike trend-following approaches, the strategy exploits volatility's natural tendency to return to equilibrium after extreme movements.
All positions are implemented through liquid, exchange-traded volatility products with transparent pricing and minimal slippage.
100% rules-based execution eliminates emotional decision-making and ensures consistent application of the strategy methodology.
Volatility ETFs are complex instruments that may not track their intended benchmarks precisely. These products can experience significant decay over time due to roll costs and contango effects.
Sudden regime changes in volatility markets can occur rapidly, potentially resulting in losses before the model can adjust positioning.
No quantitative model can predict market behavior with certainty. Historical patterns may not repeat, and the strategy may underperform during certain market conditions.
Some volatility ETFs employ leverage, which can amplify both gains and losses. Partners should understand the mechanics of leveraged products.
Volatility trading is not suitable for all investors. Partners should conduct thorough due diligence and consider their risk tolerance before implementation.
Core signal generation logic and regime detection framework completed
Extensive historical simulation and stress testing completed
Real-time signal validation and paper trading in progress
API documentation and partner onboarding pending completion
ETI certificate issuance with exchange listing planned
General availability through licensed partner network
Partners interested in early access to the Elastic Sigma model documentation and development updates are invited to register their interest.
Register InterestEarly partners will receive priority access to model documentation, signal validation data, and integration support upon launch.