Expmonthly Vol3no7 Nov 1

7/27/2019 Expmonthly Vol3no7 Nov 1

1/12

November 2012 | vl. 3 N.

MONTHLYT H E O P T I O N T R A D E R S J O U R N A L

De te Piti

Fit the Trade?

Te Evti te

Holiday Efecti VIX Fte

ThE PrEDIcTIVE

ValuE oFSKEW

corrElaTIon rIsk Tdbe Ft

d ret Pedit


2/12

www.expiringmonthly.com November 2012 2

ONTHLYT H E O P T I O N T R A D E R S J O U R N A L

editorial

bill LuyJad Wdad

mak Sastian

Andw Giinazzi

design/layout

Laun Wdw

contact information

editial cnts: [email protected]

Adtising and Sals

expiing mnthly Psidntmak Sastian: [email protected]

Phn: 773.661.6620

Th infatin psntd in this pulicatin ds nt cnsid yu

psnal instnt jctis nancial situatin; thf, this

pulicatin ds nt ak psnalizd cndatins. This inf-

atin shuld nt cnstud as an t sll a slicitatin t

uy any scuity. Th instnt statgis th scuitis ay nt

suital f yu. W li th infatin pidd is lial;

hw, expiing mnthly and its aliatd psnnl d nt gua-

ant its accuacy, tilinss, cpltnss. Any and all pininsxpssd in this pulicatin a sujct t chang withut ntic. In

spct t th cpanis scuitis cd in ths atials, th

spcti psn, analyst, wit ctis t expiing mnthly that

th iws xpssd accuatly ct his h wn psnal iws

aut th sujct scuitis and issuing ntitis and that n pat f th

psns cpnsatin was, is, will latd t th spcic c-

ndatins (if ad) iws cntaind in this pulicatin. expiing

mnthly and its aliats, thi plys, dicts, cnsultants, and/

thi spcti faily s ay dictly indictly hld psi-

tins in th scuitis fncd in ths atials.

optins tansactins inl cplx tax cnsidatins that shuld

cafully iwd pi t nting int any tansactin. Th isk f

lss in tading scuitis, ptins, futus, and fx can sustantial.

Custs ust cnsid all lant isk facts, including thi wn

psnal nancial situatin, f tading. optins inl isk anda nt suital f all insts. S th ptins disclsu dcu-

nt Chaactistics and risks f Standadizd optins. A cpy can

dwnladd at http://www.ptinsclaing.c/aut/pulicatins/

chaact-isks.jsp.

expiing mnthly ds nt assu any liaility f any actin takn

asd n infatin adtisnts psntd in this pulicatin.

N pat f this atial is t pducd distiutd t ths y

any ans withut pi wittn pissin f expiing mnthly its af-

liats. Phtcpying, including tansissin y facsiil ail scan,

is phiitd and sujct t liaility. Cpyight 2012, expiing mnthly.

contents

4 e n

Bill Luby

5 t pv V sk

Mark Sebastian

7 d p f t?

Andrew Giovinazzi

9 c rk tb f

r p

Jared Woodard

11 The Evolution of the Holiday Eect in

VIX Futures

Bill Luby
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3/12


abt te

Expiig Mty Tem

Bi lby

bill is a piat inst whs sach

and tading intsts fcus n latility,

akt sntint, tchnical analysis,

and eTFs. His wk has n has n

qutd in th Wall Stt Junal,

Financial Tis, bans and th

pulicatins. A cntiut t bans

and minyanill, bill als auths th vIX

and m lg and an instnt

nwsltt f just nth f San

Fancisc. H has n tading ptins sinc 1998.

Pi t cing a full-ti inst, bill was a usinss stat-

gy cnsultant f tw dcads and adisd clints acss a

ad ang f industis n issus such as statgy fula-

tin, statgy iplntatin, and tics. Whn nt tading

lgging, h can ftn fund unning, hiking, and kayaking

in Nthn Califnia.

bill has a bA f Stanfd Unisity and an mbA f

Cangi-mlln Unisity.

Jed Wdd Jad is th pincipal f Cndoptins. With a dcad f

xpinc tading ptins, quitis,

and futus, h pulishs th Cnd

optins nwsltt (in cnds) and

assciatd lg.

Jad has n qutd in aius

dia utlts including Th Wall

Stt Junal, blg, Financial

Tis Alphaill, and Th Chicag Sun-Tis. H is als a cn-

tiut t ThStts optins Pts sic.

In 2008, h was pld as a tp ptins nt in Stcks,

Futus, and optins magazin. H is als an assciat

f th Natinal Futus Assciatin and gistd pincipal f

Clinan Financial Gup LLC, a cdity tading adis.

Jad has asts dgs f Fdha Unisity and th

Unisity f edinugh.

M sebti

mak is a pfssinal ptin tad

and ptin nt. H gaduatd

f villana Unisity in 2001 with

a dg in nanc. H was hid int

an ptin tad taining pga y

Gup 1 Tading. H spnt tw yas

in Nw Yk tading ptins n th

Aican Stck exchang f

ing ack t Chicag t tad SPX

and DJX ptins F th nxt

yas, h tadd a aity f ptin pducts succssfully, th

n and th Cboe .

In Dc 2008 h statd wking as a nt at Shidan

optin mnting. Cuntly, mak wits a daily lg n all

things ptin tading at optin911.c and wks pat ti

as isk anag f a hdg fund. In mach 2010 h ca

Dict f educatin f a nw ducatin optinPit.c.

adewGivizzi Andw Giinazzi statd his ca in

th nancial akts aft gaduating

f th Unisity f Califnia, Santa

Cuz with a b.A. in ecnics in 1989.

H jind Gup on, Ltd. and quickly

ca a f th Pacic Stck

exchang (and lat th Cboe), wh

h tadd th quity and indx

ptins a 15 ya span. Duing

that pid h n had a dwn ya.

At th sa ti, Andw statd and an th Dsignatd

Piay makt mak pst f Gupon n th f th

Cboe. It ca n f th highst-gssing psts f th

cpany in 1992 and 1993. Whil actily tading, Andw was

instuntal in cating and anaging an ptin tad tain-

ing pga f Gup on.

H lft Gup on, Ltd. t c-fund Hny Capital managnt

in 2001. Andw thn jind Aquin LLC (20082011) t hlp

ing 3D quting and analysis t nancial data. H is Chif

optins Statgist at optin Pit.


4/12


Edit

nteBill Luby

ithasbeenan xciting nth f ptins tads, withth n-nding Gk daa kping th u zn n

dg, lctins in th Unitd Stats, a ladship tansi-

tin in China and f cus th singly inxal ach

twad th scal cli. Yt with all th daa, th N

xpiatin cycl was anth latily quit n f latil-

ity, with th vIX nw unal t is a th tns f fu

nths and cunting.

In th N issu, expiing mnthly tackls a nu-

f tily issus. mak Sastian s up s pin-

ing sach and analysis f th Cboe SKeW Indx and its

suitaility as a tl f hlping t pdict th dictin f

th vIX.

elswh, Andw Giinazzi taks a had lk at al-

izd latility and th ang f tin in th undlying as

a dtinant in stuctuing psitins that a st suitd

f spcic latility gis.

Jad Wdad xtnds his cnt wk n latility isk

piu with a lk at clatin isk piu and in th

pcss analyzs s f th ndings psntd in optin-

Iplid Clatins and th Pic f Clatin risk, a

cnt pap y Dissn, manhut, and vilk.

Instad f thinking f y gift list this hliday sasn, I

nd yslf cntplating s sasnal quiks in latility

in Th elutin f th Hliday ect in vIX Futus.

Whth yu wish list includs high latility lw

latility, all f us at expiing mnthly wish yu a happy,

halthy and ptal hliday sasn.

As always, ads a ncuagd t snd qustins,

cnts gust aticl cntiutin idas t dit@

xpiingnthly.c.

Ha a gd xpiatin cycl,

bill Luy

Contributing Editor
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5/12


Te Peditive Ve

sewMark Sebastian

skewisatermusd in saldint ways. Th tw st cn

ways I ha is th spad twn

nths (althugh gnally that is

fd t as t stuctu). Th

th and cn us f th

t has t d with th latin f th

ll f iplid latility f puts la-

ti t th ATm ptins oTm calls.

Shps us sal dint thds

t asu skw. many us th 25

dlta call lati t th 25 dlta put

at ith 30, 60 90 days t xpia-

tin. oths asu puts and calls

lati t ATm ptin (y pfd

thd). Th Cboe SKeW Indx uss

th latin f fa ut-f-th-ny

puts (stis calld tail isk puts,

swan puts, units) lati t

standad oTm puts.

This is a uch dint appach

t skw, instad f tlling tads hw

xpnsi oTm puts that culd cn-

cialy c int play a lati

t ATm ptins, th Cboe has ch-

sn t asu hw xpnsi a put

is that wuld ally nly c int

play in th nt f th a lack swan.

Futh, its asuing th 30

days t xpiatin, a swhat na

t tad (y st citicis f th

indx is that it ight ak sns

t un a lack swan indx using th

vXv calculatin ath than vIX).

This gs th qustin, why ds

this indx xist? Th tad wh is nt

wll sd in ptins ight answ

that whn th indx is sup-xpn-

si, a sll- ight iinnt. Th

sd ptin tad ight ak an

ppsit assuptin. Whn th SKeW

Indx is stp, th akt has hdgd

against a sll-, and thus th a

sius had winds t a aj sll-.

my gal was t dtin whth th

SKeW Indx culd a lading indicat

f th vIX. Will th vIX g up dwn

if th SKeW Indx is ly at stp?

Lts stat with ly stp. Sinc

2004, whn th vIX switchd its cal-

culating thdlgy, th aag

pic f skw has n 119.54, with a

dian nu f 119.42. I an s-

al tsts, if th SKeW Indx was a

th an f th pius 5 days, did

th vIX th nxt day incas?

Th answ was ys, ut nly as ftn

as it dcasd. If th vIX was up and

th SKeW Indx was up, did that lad

t anything? Again th answ was n.

ey tst I an ca ack with nn-

tadal sults. basically, n att

wh th vIX is, wh th vIX has

n, a stp skw in and f itslf is

nt a gd dtinant f vIX dictin

and pducs sults that a cnsis-

tntly a cin ip.

T hnst, th sults did nt

supis , th puchas f insu-

anc happns in tis whn w a in

panic and whn w a in cal. I thn

gan t study whth at skwnss

was pdicti than its cusin. I

fully xpctd t nd sthing; hw-

, I ha t adit, I was supisd

y th sults. Acss any itatins,

th st al pic f usful data was

that whn skw was lw its an,

falling, and th vIX dcasd. o

Figure 1 SKEW and VIX, Jan 1990Feb 2012


6/12


Te Peditive Vle o skew (continued)

an 8-ya pid th w 365 days

wh that happnd, n 226 f ths

days, th vIX dcasd th nxt day.

A hit f 60%, ctainly a signi-

cant sult. I thn d t s hw

any vIX pints I culd cllct ing

sht l whn vIX was dwn and skw

was lw its an and falling. This is

wh I gt y supis. Dspit fw

days whn th vIX wnt up, th nt

gain in vIX pints th 365 ccu-

ncs was aut 44 pints. An

aag incas f .12 pints.

I nw had sthing and gan t

dig. If w knw that skw falling and

lw th an and a falling vIX p-

ducd psiti vIX xpctatins, u

gal was t nd nugh l t tad.

Th n thing I always tll y studnts

is that l gts latility.

Nw w all knw that th lng

t an f th vIX is just 20;

hw, caus f th upp and

lw liits f latility, th vIX has

any ccuncs lw 20 than

a. I cnsid th tu id pint

f vIX t twn 1819 th

lng haul. This is why using 18 as a

lw vIX lt utpfd using 20

f a lt. F 2004 th vIX was

a 18, falling and had a skw indx

lw its lng t an and fall-

ing 217 tis. on ths days th vIX

wnt up th nxt day 119 tis, a win

ati f just lw 55%. W anagd,

hw, t captu alst all f u

vIX pints f u pius lt. on

ths 217 days, th vIX pickd up just

und 40 ttal pints. A signicant

tun f just und .50.

Whil I a su th a th

ways th indx can usd, w ha

fund that a lw SKeW is uch

pdicti, spcially whn th vIX

is latd and falling. It ight a

lading indicat whn vIX is alady

latd, that th indx is ging t g

high. EM
http://www.condoroptions.com/


7/12


De te Piti

Fit te Tde?Andrew Giovinazzi

oneofthefirstthings wtach optin Pit clints in u Gld

Classs is hw th ptin picing

dl wks. Th sipl asn w

d this is f tads put n a psi-

tin thy shuld knw hw that psi-

tin shuld pf st. Th psitin

will wk whn th changs in dl

inputs duing th tad lifspan a

in lin with th iginal intnt f th

tad. Wh th ducatinal pcss

stats t tun n light uls aly n is

ight h. Ctain psitins act t-

t und ctain cicustancs and

that is ttally tachal. It is a cncpt

calld .

conditionl Tding

Fist all psitins a ging t fall

int tw dint caps. I discuss

th tw spaatly lw ut will nly

spnd a fw sntncs n th st.

Th asn ing is that st f th

ink in nanc tday is ddicatd t

#1 s th alanc f y aticl will

dtd t #2.

1. u

k.This is wh st tchni-

cal and fundantal insts g. F

xapl whn Wan but wants

t uy Ko, h will sll puts lw his

tagt pic and nt gi a g aut

th latility. Anth xapl wuld

a tad lying n a sht t

uy signal t uy dp calls and

aid th isk f a chang in latil-

ity. onc th undlying hits th sll

signal th psitin is unwund. In

ths cass th ptins a just a

hicl t accplish gals with th

undlying. Th ida is t tak th

aial f fwad latility ut f th

quatin. F an ptin dl input

pint f iw st f th lianc f

succss is n pic f th undlying,

stik and ti t xpiatin. At last it

shuld .

2. u k

.H is wh th uniqu

pptis f ptins c int play.

optin alus a n f th fw

nancial instunts that ha a

aial in fwad picing that is nt

knwn f ctain. Th ptin a-

kt uss th nxt st thing which is

th iplid latility f th ptins

n th tading day. If a tad thinks

th cunt iplid latility is t

xpnsi twn nw and xpia-

tin f a gin undlying, thy can

cat a psitin t sll it, gadlss

f whth thy ha a ullish a-

ish pinin n th undlying. It is th

spd f th nt in th und-

lying thy ca aut. Th na thy

a tading is a scnday cnsid-

atin, nt th st. Th thught p-

css is nt th clsing pic f AAPL

tday ut lik is th iplid la-

tility picd ight f th nxt 3 wks

f th ang f tin xpctd.

F an ptin dl pint f iw th

fwad latility usd t gnat th

alu is th st iptant with pic,

ti t xpiatin and stik scnd-

ay. If th lati alu f th latility

cpnnt ds nt lk intsting,

th is n tad in th na.

uing relized Voltility

condition

my sipl dnitin f alizd (hist-

ical) latility is cls t cls -

nt in th undlying s

pius pid f ti. mst nally

th intals a a 10-day, 20-day and

30-day ing aag f th past

tading days. Th ida h is t sta-

lish what I call a

f th undlying. Can th undly-

ing nugh f th psitin that

I ha chsn f it? Is th undlying

ing t uch f th psitin that

I ha chsn f it? If ginning tad-

s thught aut a psitin in this

light what thy wuld stat t aliz

is that a ply cnstuctd psitin

is dd f th stat caus th

alizd latility will nt suppt (

whl) th tad st up.

Figu 1 is an xapl f th st

cnt actiity in AAPL as f th wk

f 11/23/2012. I ha dawn a hizn-

tal gn lin t illustat th highs f

30-day iplid latility th last

6 nths. F any tads lking

at iplid latility, AAPL tading at a

na 6 nth high in an anings

Th ida h is

t stalish what

I call a ang ftin f thundlying.


8/12


cycl wuld a asn t sll ptins.

Nally I wuld with th. Th

pl is that th 10-day alizd

latility (whit lin) is aking a nw

6 nth high t. It is y dicult t

ak ny slling ptins whn th

iplid latility is tading at such a

hug discunt t th cnt alizd

latility.

At th iniu this wuld chang

th psitin typ a tad wuld us.

Slling na t gaa in a ut-

ty typ stup is dd t failu

caus th range of motion in th

undlying is t gat ight nw. In

this cas it wuld tt t wait

until th alizd latility stats

t sftn, lik it has, and sll a lss

gaa-intnsi psitin lik an in

cnd s ut-f-th-ny put

spads. Whth AAPL is a $500 stck

a $700 stck th latility dispai-

tis a gnating th tad ida,

nt ncssaily th dictin AAPL is

ging. Th tads lk at al-

izd latility, th tt th psitin

stuctu will stat in th st plac

and ipd sults shuld fllw.

Waiting f cnditins t ip f

tt nty pints will hlp th sults

as wll. EM

Doe te Poition Fit te Tde? (continued)

Figure 1

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9/12


ceti ri

Tdbe Ft d

ret PeditJared Woodard

thepromisef d-n ptfli thy was

that a askt f unc-

latd assts wuld p-

id tt isk-adjustd

tuns, ti, than a

ptfli whs cnstitu-

nts tgth. Th pl that

cnfntd any insts in 2008 and

in th yas sinc was that, in a cisis,

n taditinally dissiila assts had

th ptntial t c highly c-

latd, aking disicatin ts

fuitlss. Insts cncnd that

a ptfli f stcks ight c

incasingly clatd in a cisis ha

tund t quity indx ptins t p-

tct against that isk.

In optin-Iplid Clatins

and th Pic f Clatin risk,

Dissn, manhut, and vilk

agu that clatin isk is a picd

fact that can asud f

quity ptin pics. Thy stiat

th piu paid f clatin isk

(aiatd lw as CrP) as th

dinc twn th iplid c-

latin in an ptins pic and th

susqunt alizd clatin f th

undlying indx cnstitunts. This

thd shuld failia t u ad-

s, sinc it is siila t th thd

f sutacting alizd latility f

ptin iplid latility t stiat

th latility isk piu (vrP).

T analyz th pptis f th

CrP, th auths lk at th ti

sis f this piu f th S&P 500

and Dw Jns Industials th last

ftn yas. As with th vrP, thy

nd that th CrP is ngati, aning

that ptin uys ha tndd t pay

a high pic t hdg against c-

latin than has actually ccud in th

undlying assts.

Tw th clais in th pap a

f paticula intst. Th auths nd

that th CrP is a ky di f th

vrP. In fact, th dl thy gi f

picing clatin isk attiuts th

nti indx aianc isk piu t

picd clatin isk. (p. 9) This is

an iptant clai caus it is nt

initially ius, cncptually, whth

an incas in th latility f a askt

f assts wuld a caus f high

askt clatin

ic sa. F

xapl, whil

th ang f daily

Dw Jns tuns

has n wid at

high lls f c-

latin, a scatt

plt f that la-

tinship ds nt

suggst a latin-

ship (Figu 1).

Th agunt

f th clai that

clatin isk

dis th indx-

ll aianc isk

piu is nt cla. Psiting

a dl and nding that th

data ts th dl is nt th

sa thing as an agunt

an xplanatin. I think th ida

is that, withut picd cla-

tin isk, th wuld n way

t xplain why indx ptins tnd t

picd. Th auths xplain

that th vrP f indx ptins is nga-

ti, as has n widly sd,

and thy als nt that f indiidual

quity ptins, w cannt jct th

null hypthsis that ptins a faily

picd, i.. that th vrP n indiidual

stck ptins is z. Psualy th

infnc th auths a aking is

that indx ptins ha a ngati

vrP caus stck insts a using

ths ptins t hdg against cla

tin; and that indiidual quity ptins

ha z vrP caus, if th wy

is that indiidual stcks will c

Figure 1 1-Month DJIA Realized Correlation and Daily

Stock Returns


10/12


clatd, ptins n ths

indiidual stcks will nt pid th

dsid ptctin.

As a dsciptin f inst ha-

i, this all sunds fai and plausil.

but assuing th a xplanatin

is ight, a statgy suggsts itslf.

Insts wid aut incas-

ing clatins duing a cisis culd

hdg with th ptins f histically

lw ta assts instad f using indx

puts. If stcks iginally intndd t

disify faild t d s in a akt

dclin, uys f puts n ths stcks

wuld nt f ing sht dltas

and lng gas in ths stcks, and at

a lw cst than thy

wuld xpctd t

pay using quity indx

ptins. And sinc th

quity ptin vrP is nt

ngati, ptin uy-

s wuld nt incu th

sa hdging csts in

ull akts.

I a still a it skp-

tical f th stngth

f th clai that c-

latin isk ntily

xplains th indx vrP.

oth studis ha

fund th picd fac-

ts t dtinants

f indx vrP, lik daily

jup isk and th la-

tility f latility. W can

als ask why, gin th

incasd CrP in cnt yas (high

spad twn iplid and alizd

clatin), th indx vrP is nt als

high than its histical aag.

Finally, th auths clai that

iplid clatins xplain futu

akt tuns, with high pdicti

pw n ut t 6 and 12 nths.

Th supis h (Figu 2) is that,

whil vrP has a high pdicti

alu at a n-nth hizn, th

-squad alu f iplid cla-

tin stiats f th th Dw Jns

Industials and th S&P 500 w

high f 100 days fwad, and

incasd t 0.10 n as fa ut as

n ya. Th auths ntin s

pssil xplanatins f ths la-

tinships including th cts f high

clatin n futu diidnd and cn-

suptin gwth latility. EM

r

Dissn, Jst, manhut, Pascal J.

and vilk, Gigy, Option-Implied

Correlations and the Price of Correlation

Risk(oct 25, 2012). Adancd risk &

Ptfli managnt Pap. Aailal at

SSrN: http://ssn.c/astact=2166829

coeltion rik Tdble Fto nd retn Pedito (continued)

Figure 2 R^2 Predictive Value for S&P 500 Returns

of Implied Correlation and Variance Risk

Premium

Drissntal.2

012
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11/12


Te Evti te

hidy Efeti VIX Fte

Bill Luby

withfewertading days and ahistical cd that fas an uptick

in stcks and a dwntick in latil-

ity, th nd f th ya n fails t

psnt an intiguing st f tading

pptunitis.

on phnnn latd t th

a is sthing I ha lald

th hliday ct, which is th tn-

dncy f th Cboe vlatility Indx

(vIX) Dc futus t tad at a

discunt t th idpint f th vIX

N and Januay futus.

This aticl pids s histical

analysis f th hliday ct and ana-

lyzs hw th hliday ct has n

anifst and ld th cus

f th past fw yas.

Bkgond nd context

on te holidy Efet on te

VIX Index

Pat f th xplanatin f th hliday

ct is ddd in th histical

cd. F instanc, in ight f th last

twnty yas, th vIX indx has ad

its annual lw duing th nth f

Dc. In fact, th vIX has dn-

statd a akd tndncy t dclin

stadily f th st 17 tading days f

th nth, as shwn lw in Figu 1,

which uss nalizd vIX Dc

data t cpa all vIX alus f

ach tading day dating ack t 1990.

Nt supisingly, ths 17 tading

days natly cincid with th typical

nu f Dc tading days in

adanc f th Chistas hliday.

rads shuld als nt that, n

aag, th stpst dclin in th

vIX usually ccus f th iddl f

th nth ight up t th Chistas

hliday.

Te Deembe VIX Fte

angle

mst vIX tads a awa f th tn-

dncy f iplid latility in gnal

and th vIX in paticula t dclin in

Dc. As a sult, sinc th launch

f vIX futus in 2004, th has usu-

ally n a ntical dip in th vIX

futus t stuctu cu f th

nth f Dc. Figu 2 lw

is a snapsht f th vIX futus cu

f Spt 12, 2012. H I ha

addd a dttd lack lin t shw what

a lina intplatin f th Dc

vIX futus wuld lk lik, with th

gn lin shwing th 0.50 pint dif-

fntial twn th actual Dc

vIX futus sttlnt alu f 20.40

n that dat and th 20.90 intp-

latd alu, which is did f th

N and Januay vIX futus cn-

tacts. (Apat f th disttins ps-

nt in th Dc

vIX futus, a lina

intplatin utiliz-

ing th st and thid

nth vIX futus

nally pids an

xcllnt stiat

f th alu f th

scnd nth vIX

futus.)

Lking at th

full cd f histi-

cal data, th an

hliday ct f all

days in which th

N, Dc

and Januay futus

tadd is 1.87%,

which ans that

th Dc vIX

futus ha n,

n aag, 1.87%

lw than th alu

pdictd y a lin-

a intplatin f

th N and

Januay vIX futus.

Figure 1 The Composite December VIX Index, 19902011

CboeFutursexchang,

vIXandmr

Figure 2 VIX Futures Curve from September 12, 2012,

Showing Holiday Efect


12/12

www expiringmonthly com November 2012 12

Futh analysis als that n 91%

f all tading days, th Dc vIX

futus a lw than thi N-

Januay intplatd alu. Th hli-

day ct, thf, is psistnt and

sustantial.

Te hitoy o te holidy

Efet in te Deembe

VIX Fte

Dtining whth th hliday

ct is statistically signicant is a

daunting task, as th a nly

six hliday sasns f which n

can di aningful vIX futus

data. Figu 3 shws th nthly a-

ag vIX Dc futus (slid lu

lin) as wll as th idpint f th

N and th Januay vIX futus

(dttd d lin) f ach nth sinc

th vIX futus cnscuti cntacts

w launchd in oct 2006. H

th gn as psnt th agni-

tud f th hliday ct xpssd

in pcntag ts, with th sign

intd (i.., a +2% hliday ct

ans that th vIX Dc futus

wuld 2% lw th intplatd

alu did f N and

Januay futus.)

conlion

With liitd data f which t daw

cnclusins, it is tpting t yall

th data and lk f ging pat-

tns which ay pat in th futu.

Claly n pattn is that an latd

ising vIX appas t cincid with

a lag agnitud hliday ct,

whas a dpssd falling vIX

is cnsistnt with a sall hliday

ct. Th data is uch lss c-

plling whn n tis t dtin

whth th ti aining until th

hliday sasn has an inunc n th

agnitud f th hliday ct. Whil

n ight xpct th hliday ct t

c agnid lat in th sasn,

th idnc t suppt this hypth-

sis is scant at this stag.

T su up, insts ha adily

accptd that a lw vIX is waantd

f Dc and th dwnwad lip

in Dc f th vIX futus t

stuctu cts this thinking. As fa

as whth this sasnal analy is

tadal, th is still a liitd aunt

f datant t ntin s highly

unusual latility yasf which

t dlp and ack tst a ust vIX

futus statgy dsignd t captu

th hliday ct.

In ts f tading th hliday

ct f th aind f th ya,

th cing hliday sasn is als c-

plicatd y atts such as th scal

cli dadlin and aius u zn

ilstns that a st f aly 2013.

In fact, th ay nt a asnal

quialnt sinc th Y2K fas in lat

1999 that tund ut t a latility

nn-nt whn th calnda ippd

t 2000.

Whil th pptunitis t capital-

iz n th 2012 hliday ct ay

dicult t pinpint and ting, all

insts shuld attund t sa-

snal latility cycls as 2013 unflds

and latility xpctatins and

w with th nws cycl as wll as th

calnda. EM

f r

expling th vIX Futus T Stuctu,

Pat IExpiring Monthly, August 2010

An Intpti Fawk f vIX Futus

(Scnd in a Sis)Expiring Monthly,

Spt 2010

vIX Futus: Putting Idas int Actin

(Thid in a Sis)Expiring Monthly,

oct 2010

A Histy f vIX Futus rll YildsExpiringMonthly, Spt 2011

Insting Iplicatins f th vIX T

StuctuExpiring Monthly, oct 2011

Calculating th Futu rang f th vIX

Expiring Monthly, Fuay 2012

Th vIX T Stuctu as a Pdict

f Futu rtunsExpiring Monthly,

mach 2012

Te Evoltion o te holidy Efet in VIX Fte (continued)

Figure 3 VIX December Futures Holiday Efect, 20062012
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