Studies - Posted on Monday, May 25, 2009, 9:05 PM GMT +1

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May Monday 25

VIX and VIX Futures Seasonalities

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This is a follow-up to my post Memorial Day, the VIX and Other (Un-)Favorable Seasonalities.

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A few weeks ago I posted about the weekday seasonality of the VIX (see Weekday Seasonality of the VIX), and as Adam Warner on the Daily Options Report already pointed out: (cit.) “The *cash* VIX loses some steam ahead of holiday’s/weekends as traders lower bids to account for their weekend/holiday decay.”

Due to one of those findings posted in Memorial Day, the VIX and Other (Un-)Favorable Seasonalities, I thought it would be interesting to check if the same principle (quite probable) -and to what extend- (which was the more interesting question) applies to long weekends with an exchange holiday as well, and (the most appealing question) is there a chance (if any) to capitalize on those ‘VIX Seasonalities’ with a (partly extraordinary) significant bullish bias (concerning the VIX), e.g. by utilizing the CBOE VIX front month future.

I checked for those occurrences since 01/02/1990 where the following setups were triggered, assumed one would have bought the VIX (CBOE S&P 500 Volatility Index) on close of the session immediately preceding the respective exchange holiday for a holding period of 1 day. Therefore concerning Memorial Day one -hypothetically and for statistical purposes only- would have bought the VIX on close of Friday immediately preceding Memorial Day (in this event Friday, May 22, 2009), and closed the trade on close of Tuesday after Memorial Day .

The US exchange holidays are celebrated …

  • New Year’s Day – January 1
  • Martin Luther King, Jr. Day – observed on the third Monday of January
  • Presidents Day – observed on the third Monday of February
  • Memorial Day – observed on the last Monday of May
  • Independence Day – July 4
  • Labor Day – observed on the first Monday in September
  • Thanksgiving Day – observed on the fourth Thursday of November
  • Christmas Day – December 25

____Left Out____

Good Friday

____No Exchange Holidays____

Columbus Day – observed on the second Monday in October

Veterans Day – November 11

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At first Table I below shows the VIX performance (since 01/02/1990) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have bought the VIX on close of the session immediately preceding the respective exchange holiday. Setups S1 to S5 are defined as

Table I

  • Setup S1: New Year’s Day – January 1
  • Setup S2: Martin Luther King, Jr. Day – observed on the third Monday of January
  • Setup S3: Presidents Day – observed on the third Monday of February
  • Setup S4: Memorial Day – observed on the last Monday of May
  • Setup S5: Independence Day – July 4

20090524-VIX-2

Table II below shows the then current VIX front month future‘s performance (since 04/15/2004) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have bought the then current VIX front month future on close of the session immediately preceding the respective exchange holiday.

20090524-VX-2

Table III below shows the VIX performance (since 01/02/1990) concerning setups S1 to S3 -side by side- on the next sessions assumed one would have bought the VIX on close of the session immediately preceding the respective exchange holiday. Setups S1 to S3 are defined as

  • Setup S1: Labor Day – observed on the first Monday in September
  • Setup S2: Thanksgiving Day – observed on the fourth Thursday of November
  • Setup S3: Christmas Day – December 25
  • Setup S4, S5 VIX

20090524-VIX-3

Table IV below shows the then current VIX front month future‘s performance (since 04/15/2004) concerning setups S1 to S3 -side by side- on the next sessions assumed one would have bought the then current VIX front month future on close of the session immediately preceding the respective exchange holiday.

20090524-VX-3

Bottom line: Although the VIX itself shows a consistant bullish pattern on the session after the long weekend -only the magnitude of change on the upside varies-, VIX front month futures show mixed results -from significantly ‘bearish’ (dropping the session following the respective exchange holiday with a significant below-average profit factor, regularly the exchange holidays in the second half of the year) to significantly ‘bullish’ (regularly the exchange holidays in the first half of the year), but results might be purely random due to the very low sample size (5 occurrences only), and heavily depending on the then current (positive or negative) premium of VIX front month futures above or below the *cash* VIX (some kind of a short-term ‘mean-reversion’ tendency). So VIX front month futures do not show a statistical relevant tradable edge in order to capitalize on the VIX’ bullish bias over long weekends.

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A second appealing question is if -and to what extend- VIX front month futures would show a bullish and/or bearish weekday seasonality like the VIX does on Fridays and Mondays, and if there is a chance to capitalize on any such pecularities (if any).

Just as a reminder Table V below shows the VIX performance (since 01/02/1990) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have ‘bought’ the VIX on close of the session immediately preceding the respective weekday. Setups S1 to S5 are defined as

  • Setup S1: Monday
  • Setup S2: Tuesday
  • Setup S3: Wednesday
  • Setup S4: Thursday
  • Setup S5: Friday

20090524-VIX-1

The win/loss ratio on Fridays is tilt in favor of lower (VIX) closes, and significantly tilt in favor of higher closes and significantly above-average magnitude of change on the upside (‘profit factor’) on Mondays.

Table VI below now shows the then current VIX front month future‘s performance (since 04/15/2004) concerning setups S1 to S5 -side by side- on the next sessions assumed one would have bought the then current VIX front month future on close of the session immediately preceding the respective weekday.

20090524-VX-1

Concerning the win/loss ratio none of the weekdays shows any statistically relevant above or below average probability for a higher or lower close, and the notably above-average magnitude of change (‘profit factor’) on Wednesdays and below-average magnitude of change on Tuesdays is mainly impaired by the (slightly) above-average win/loss ratio on Wednesdays, (slightly) below-average win/loss ratio on Tuesdays and the volatility of the VIX front month future itself (the average magnitude of change in VIX front month futures is significantly above the average magnitude of change of the SPX, so a minor deviation in win/loss ratios has an immediate and major impact on the respective profit factor).

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Bottom line:

  1. Although the VIX shows a consistant bullish pattern on the session after the long weekend -only the magnitude of change on the upside varies-, and if -and to what extend- this could possibly provide a tradable edge concerning VIX front month futures is more depending on the then current premium of VIX front month futures above or below the *cash* VIX (with some kind of a short-term ‘mean-reversion’ tendency of premiums) and the respective magnitude of change concerning the VIX on the session immediately following an exchange holiday than the fact itself that the VIX regularly closes higher the session after an exchange holiday.

Successful trading,

Frank

Disclaimer: (Net) Long VIX futures at time of writing.

P.s.: WordPress recently implemented a Twitter widget, so I’ll regularly make some intraday updates as well using Twitter. If you’re interested in, please have a look at the blog during the trading session as well or subscribe directly to Twitter (recommended).

Comments (1)

 

  1. leo00o83 says:

    Great work, Frank! Setup 4 in Table 1 looks like the most promising for the cash Vix. We’re also in a anemic volume consolidation period in SPX and a pretty tight range in the Vix’s falling wedge pattern, so it seems that it’s harder to tell intermediate term direction in this stage till it either breaks down or breaks out.

    Leo

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