We are option premium sellers but we absolutely never sell naked calls in the VIX because of the constant potential for an explosive move to the upside. This is true of the VIX much more than calls on index ETFs and individual stocks. A short Vertical Spread though would cap the upside risk. How would a strategy of selling vertical call spreads in the VIX perform? Would they perform better after a rise in the VIX?
Our study was conducted in the VIX using data from January 2008 (a few months before the VIX rocketed higher) to the present. We sold wide Call Spreads consisting of a short at-the-money (ATM) 50 Delta Call and a long 25 Delta Call. We managed the trades at 50% of max profit if possible or held to expiration.
A results table of the VIX short Call spreads were displayed. The table included the average P/L, average spread width, success rate, average win, average loss and max loss. A second results table compared short VIX Call spreads when VIX Implied Volatility Rank (IVR) was above and below 50. The table showed that there was not much difference when the IVR of the VIX was below and above 50.
For more information on the VIX see:
Market Measures from June 17, 2016: "Fading Fear | Trading After Large VIX Moves"
Market Measures from June 28, 2016: "Buyer Beware | VIX Call Calendars"
Options Jive from July 26, 2016: "Comparing Movements in SPX and the VIX"
Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the valuable takeaways and the results of our study selling wide Call Spreads in the VIX as a profitable strategy and a possible hedge to short market delta.
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