VIX Day-of-Week Seasonality
The next few posts will be about VIX (and volatility ETF) seasonality. I’m not the first to cover the subject (VIX & More has been beating the drum I think the longest), but I’m hoping I can add a twist or two.
First up is maybe the starkest VIX seasonality bias: the day of the week (DOW).
In short, the VIX tends to reach its highest point of the week on Monday, before falling throughout the week to end at its lowest point on Friday.
The graph above shows where the VIX has closed on average, Monday through Friday, relative to the average close of that week, since 1990.
Mondays have on average closed 1.0% higher than the weekly average. The VIX has fallen throughout the week, particularly from Thursday to Friday. Fridays have been the “worst” day of the week for the VIX, closing -1.1% lower than the weekly average.
Numbers for the number lovers…
The stats further confirm Monday’s positive bias and the remainder of the week’s negative bias.
The VIX has averaged a 1.9% gain on Mondays with 65% of Mondays positive. Contrast that with Fridays and an average loss of -0.7% with only 39% of Friday’s positive.
How consistent has this observation been?
In the next graph I’ve made the utterly unrealistic assumption that you could directly trade the VIX. Trader #1 (grey) is long only on Mondays (from Friday’s close). Trader #2 (red) is long every other day of the week.
As the rapidly diverging lines indicate, this has been a very consistent observation.
First, replacing “Mondays” with the “first day of the week” and “Fridays” with the “last day of the week” (since some weeks don’t start/end on Monday/Friday) yields more or less the same results. This observation is not actually tied to the day of the week, but rather the beginning and end of the week.
Second, I haven’t shown it in this post, but there’s some evidence that DOW seasonality might be diminishing. It’s not clear yet, but there are some tells. More on this perhaps in a future post.
In my next post I’ll rerun these same tests on ETFs tracking the VIX to understand whether day of the week seasonality in the VIX carries over. More to follow.
P.S. Frank at Trading the Odds also did a nice write up on VIX DOW seasonality here.
. . . . .
Filed under: Time-based, VIX & Volatility | 9 Comments