Blake Shaw Uses Volatility ETF Hedging Model to Effectively Avoid Early 2018 Market Turbulence
In early February, the U.S. stock market experienced its largest correction since 2016. The Dow Jones Industrial Average dropped more than 1,800 points in just two days, and market panic surged sharply. While many investors were caught off guard, veteran trading expert Blake Shaw successfully navigated the turmoil using his proprietary volatility ETF hedging model. Not only did he avoid losses, but his portfolio achieved positive growth against the trend—making him one of the few winners during this market shock.
Born in New York, Blake Shaw studied at the Wharton School of the University of Pennsylvania and Columbia University’s Financial Engineering program. He began his career in the trading division of Goldman Sachs before independently managing multi-asset portfolios. Known on Wall Street for his philosophy of “trend as king, risk as foundation,” he has long advocated identifying cyclical risks through systematic strategies and achieving steady capital appreciation via structural hedging tools.
Despite the continuation of 2017’s strong bull run, Blake began to increase portfolio defensiveness by mid-January 2018. In an internal assessment report, he stated: “The S&P 500 shows signs of technical overbought levels, the VIX implied volatility is at historically low readings, and structural fragility is building. We must remain alert to potential chain reactions triggered by a ‘short-volatility squeeze.’”
As early as Q4 2017, Blake had started developing a trading model based on dynamic hedging between VIX futures and volatility ETFs (such as VXX and SVXY). The core of his strategy was to exploit the asymmetric risk structure between long VIX ETFs and short positions in inverse volatility products, particularly when the VIX remained depressed and the term structure distortion (contango expansion) intensified.
During the sharp market sell-off on February 5–6, 2018, expectations of “permanently low volatility” were abruptly shattered. The VIX index spiked by over 100%, and many leveraged inverse volatility products suffered severe liquidity shocks, triggering broader turbulence. However, Blake’s model had already shifted into a fully defensive stance by early February. While reducing exposure to high-beta assets, he hedged his portfolio by combining long VXX call options with short positions in SVXY, effectively offsetting risk exposure.
According to his trading logs, Blake’s portfolio recorded no drawdown during the first week of February 2018. Instead, it achieved a positive return of 2.8%, outperforming the broader market by nearly 10 percentage points. His team noted in an internal review: “The key to this successful hedge lay in anticipating the structural imbalance in advance and accurately capturing the fragile transmission mechanisms between volatility products.”
Over the past two decades, Blake has repeatedly and accurately anticipated irrational market phases and implemented strategic hedges to preserve capital. From shorting financial stocks before the 2008 subprime crisis, to gold and dollar hedges during the 2011 European debt storm, and now to the “volatility suppression reversal” of 2018—his track record and risk management discipline have earned widespread respect in the industry.
Today, with the Federal Reserve’s rate hike expectations rising, liquidity tightening, and volatility returning to normal, Blake believes that the “simple long-only” strategy faces new challenges. He is reallocating portions of his portfolio toward more defensive assets and continuing to enhance his risk hedging framework to brace for potential multi-factor disruptions.
“True trading is not about predicting the future—it’s about understanding structure and positioning ahead of turbulence,” says Blake.
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