# USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (5/31/16)

/To see the origin of this series click here

In the paper that inspired this series *"What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?"* the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio. The ETF's are selected from the following groups:

### PORTFOLIO EIGHTEEN:

*LONGS: XBI, IBB, XLV, XHB, SMH, XLP, HACK, AGG, IYT, EWH, FXI*

*SHORTS: VEU, SIL, RWX, VDE, IGE, IWR, OIH, IJH, DGT, IYE, ECON*

### PORTFOLIO NINETEEN:

*LONGS: IBB, XME, XOP, XBI, FXI, SMH, OIH, EWH, KBE, HACK*

*SHORTS: VPU, DGT, LIT, FM, IWR, IJH, RWO, FXG, RWX, VEU*

### PORTFOLIO TWENTY:

*LONGS: SMH, KRE, KBE, EWI, OIH, EEM, EZU, HACK, VDE, IYT*

*SHORTS: VEU, FXG, RWO, IWR, VPU, IJH, FM, IJR, DGT, JNK*

### PORTFOLIO TWENTY-ONE:

*LONGS: IGE, FXD, SPY, XHB, OIH, IXP, GLD, AGG, IYT, XME*

*SHORTS: LIT, VDE, RWX, XBI, KIE, IBB, DGT, FM, EWP, XLV*

### PORTFOLIO TWENTY-TWO:

*LONGS: **IXP, RWO, VXUS, ECH, IYT, INDA, AGG, IGE, IXC, GDX, EWZ*

*SHORTS: VDE, RWX, HEDJ, KRE, KIE, LIT, FEZ, DGT, XHB, VPU, ECON*