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  1. val
    February 24, 2023 @ 9:25 am

    well well, look at this
    must’n everybody and the world be trading this for ages if it’s that obvious?
    seems too good to be true..?


      February 24, 2023 @ 9:42 am

      Similar clams have been made for years about SPY overnight trading. Despite this, ticker:NSPY was released only a few months ago. Give it more time. An ETF for overnight vol may be launched in due time.


  2. val
    February 27, 2023 @ 11:07 am

    ETFs are created for the purpose of generating fee revenue for the emittent not for the prospect of making alpha for traders. What is the message of your statement?


  3. Ohad Osterreicher
    March 4, 2023 @ 11:05 am

    I knew a guy who used to buy VIX calls on Friday and sell them on Monday morning. As he put it, “Calls for Sabbash”. He didn’t backtest his strat, but I guess it was on to something.

    What was your thesis going into this project? Were you surprised with the results?


      March 5, 2023 @ 11:20 am

      Some of the research starts with a thesis and other studies are purely an exercise in exploratory curiosity. This particular study falls into the latter category.

      I’ve been curious about trading vol directly, rather than indirectly / partially through options, and haven’t seen any comprehensive work on /VX to my liking. This seemed like a relatively easy and straight forward series of backtests to explore and, should they be viable, implement.

      I’m not sure I’d say there was any surprise. I walked in with a blank slate and no expectations. I had no idea what I was going to find. This is a good first step in exploring trades in this space.

      The effect of the roll yield occurring 3 trading days before contract expiration is a key risk re: timing luck. It would be the equivalent of opening a single 30DTE option and rolling 3 days before expiration. I can generate ~20 different PnL curves based on the day in which the roll event occurs.

      With options, are two ways to solve for timing luck: open a 30DTE position daily or run 20 different backtests for the same strat then calculate a +/- variance band of performance a.k.a. portfolio tranching (I do the former). For futures, I’m figuring out what the “roll daily” methodology would look like. Not only would there a different roll yield, the effective average duration of the futures position would be different, which is different exposure to /VX futures curve and consequently a different trade.


  4. Vale
    March 5, 2023 @ 6:14 pm

    Yeah I think the model is overfitted.
    There must be some kind of real world restrictions to getting these results.
    Not saying that there isn‘t an edge there by trading Fr-Mo futures.


      March 7, 2023 @ 7:39 pm

      There are no models in play that can be overfit (or underfit), just a basic measurement between close-close, close-open, and open-close pricing.

      I’m working on a few updates to this post to remove the roll yield effect on the Fri close to Mon open trades. In offline discussions, the roll event which occurs 3 trading days before expiration appears to be materially and improperly influencing the weekend trade stats. Doing this also solves for the timing luck issue I mentioned in another response by avoiding roll events entirely. After the update, daily results will be reflective of the trade without any roll yield effects.

      I’ll post a comment and a note at the top of the page with more details once the updates have been made.


        March 19, 2023 @ 11:20 pm

        Thank you for your patience.

        The post has been updated to correct for the roll-yield calculation error. Timing luck remains a notable factor and is mentioned in the updated discussion section.


  5. David King
    March 6, 2023 @ 10:33 am

    VIX closed (4pm EST) on 3/3/23 at 18.49 and opened on 3/6/23 (9:30am EST) at 19.05.
    /VX closed (4pm EST) on 3/3/23 at 19.50 and opened on 3/6/23 (9:30am EST) at 19.40.

    When looking at the data from VIX it suggests a profitable trade, but when looking at /VX futures data, it is a loss. I think the products you are suggesting won’t work. There needs to be a way to trade VIX directly, which outside of options is not possible. The issue with /VX futures is that they open for trading at 6pm EST on Sunday, which allows for plenty of time for this trading opportunity to lose its edge. Would you be able to rework this strategy using data directly from /VX futures? Or do you only have access to VIX data?


  6. Ohad Osterreicher
    March 6, 2023 @ 11:10 am

    How did you jump to this conclusion just from one data point? The backtest clearly indicates a smaller than 50% win rate. This is completely in line with the strategy’s performance.
    Yes, I guess directly “trading the VIX” through SPX options would be possible, but that is not something many could or would like to do, given the high maintenance and transactions costs that come with it.


  7. David King
    March 6, 2023 @ 12:09 pm

    I’d like to edit my previous comment, rereading your post you do state that you used /VX futures data, not VIX data. When you did your back tests, did you try closing the futures positions out on Sunday at open? Do you think that this would have performed any better? Or would it be better to have held them until Monday at open like you suggest? I’m also curious if purchasing a call option on VIX, like another commenter had suggested, or a put option on SPX/XSP would work as well, worse or better than trading the futures products?


      March 7, 2023 @ 8:04 pm

      I have not explored a 6pm ET Sunday entry/exit. The data Cboe provides is open, high, low, close (OHLC) for each “standard hours” trading day. Any after-hours price action, such as on Sundays, is not in the freely-available data. However, it wouldn’t be difficult to test if I get my hands on the data.

      My purely-speculative answer is that exiting the Friday 4pm position at 6pm Sunday it would improve performance vs opening at 9:30am Monday. Reason being is the illiquidity premium of not being able to exit the position has expired. Any news events can be acted upon by 6pm Sunday and wouldn’t have to wait for a Monday morning exit.

      VIX options should be roughly similar in performance if matched to the duration/expiration date of the /VX contract and opened such that delta of the option position is as close to 1 as possible. There will be alternative friction costs of trading options which may or may not exceed those of trading futures, and there will be additional imperfections due to the introduction of greeks for options trading. However, one nuance is that a trader can trade the VIX options using Reg-T or portfolio margin as opposed to SPAN margin (i.e.: a futures account wouldn’t be needed). This may be useful from a cash management optimization standpoint.

      Trading on S&P500 products would be a different trade as it gives you delta exposure to the S&P500. Hypothetically, ignoring all the complexities and costs associated with hedging out delta and the other greeks so that you’re left with exposure to just vega, results may still be entirely different since vega doesn’t respond linearly to changes in IV.


  8. Val
    March 8, 2023 @ 3:51 am

    Forward testing with /VX Minis and Automation API for a year or better two is the best way to find out if this strategy really holds up.


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