Is Implied Volatility Seasonal?
Mar 30, 2017
On multiple choice examinations, it's often helpful to eliminate answers we know are wrong in order to reduce the number of possible answers, consequently improving our chance of selecting the correct answer.
By cutting out a way of thinking or an approach that is known not to work, traders can similarly improve their probability of success.
With volatility hovering near the lower end of its typical range, traders may be wondering if there's a "seasonal" aspect to volatility that will drive it higher during the middle or latter part of the year.
If you're curious about this question, a recent episode of Options Jive may help clear up any uncertainty.
On the show, the hosts discuss internal research conducted on VIX data from 2004 to present. The results of this analysis (by month) show that on average the VIX does not show any discernible trends by "season."
Interestingly, the second level analysis conducted on the data also reveals that the range in the VIX does not appear to fluctuate a great deal by season, either. On average, the range of VIX prices has been consistent over all months of the year.
While this knowledge may not be indicative of a specific trading approach, it does remove from consideration the incorrect belief that volatility will increase simply because time has passed on the calendar.
If you want to review the full study illustrating the lack of "seasonality" in historical VIX data, we encourage you to watch the complete episode of Options Jive focusing on this topic.
If you have any questions or comments, please don't hesitate to leave one below, or reach out directly at email@example.com.
We look forward to hearing from you!
Sage Anderson has an extensive background trading equity derivatives and managing volatility-based portfolios. He has traded hundreds of thousands of contracts across the spectrum of industries in the single-stock universe.
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