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Market Measures

Which VIX Should I Sell?

| Jan 24, 2017
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Market Measures

Which VIX Should I Sell?

Jan 24, 2017

When it comes to fear in the market, the uncertainty and “pop” in option IV tends to be short-lived. Historically, the most reactive to rips in volatility have been seen in VIX (30 day IV Index), whereas VXV (90 day IV Index) and VXMT (200 day IV Index) have been relatively muted. Does the same hold true for later-dated options in VIX? Is selling VIX [Call Spreads]() with a larger number of days to expiration an efficient strategy?

Using VIX (S&P 500 Volatility Index) from 2006 to present, our team sold the 50 delta and purchased the 10 delta Call options. These Vertical Call Spreads were sold with 45, 90 and 150 Days to Expiration. All occurrences were managed at 50%.

The Results

While the win rate in all three timeframes was above 85%, the average P/L per day in 90 and 150 DTE timeframes indicated that it took longer to manage the spreads at 50% of maximum profit.

From there, our team analyzed times when VIX was greater than 20, and results showed that the 45 day timeframe again performed best. On top of that, when VIX popped above 20, our team saw the largest increase in Average Points Risen during the shortest timeframe, indicating a less fearful market the further out in time no matter the volatility product (VIX, VXV, VXMT).

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