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SPY vs. VIX: Backtesting Comparable Strategies

May 30, 2018

By: Sage Anderson

We already know that SPY and VIX are inversely correlated - as SPY goes up, VIX usually goes down, and vice versa.

However, that information doesn't tell us how trading strategies in each respective symbol have performed over time - particularly a side-by-side comparison of SPY and VIX.

Fortunately, a recent episode of Market Measures examined this precise question, and we think the results are worth a few moments of your time.

In order to evaluate the historical performance of similar strategies in the SPY and VIX, the Market Measures team designed a study that leveraged their well-known inverse relationship.

Because SPY and VIX have a high inverse correlation, the team decided to examine a short put strategy in SPY versus a short call strategy in VIX, each of which would theoretically benefit from rising equity prices and falling volatility.

As SPY rises, short puts in that underlying should theoretically decrease in value, just as a falling VIX would result in decreasing values for its associated calls.

The study used data in both underlyings (from 2006 to present) and managed profits at 50% of max profit (where applicable). The results of this study are shown below:

An important piece of data in the first graphic above is the relative success rate of each respective strategy. The fact that the two approaches produced nearly identical success rates provides further confirmation of the strong inverse relationship between the two.

However, digging further into the results, we can see some important nuances that differentiate the two strategies.

Looking at the first slide, the average P/L numbers for the short puts in SPY are higher as compared to the short calls in VIX. However, we must keep in mind that SPY is much larger than VIX in absolute value, which helps explain that difference.

Another important takeaway from this study can be found on the second slide, under the category "max loss." Despite the fact that SPY is so much larger than VIX (in absolute terms), the VIX still produced a much larger maximum loss (on average).

The reason for this is because the VIX is susceptible to "takeover" like behavior when volatility explodes - meaning the VIX can spike dramatically if an unexpected correction materializes in equity markets.

Obviously, SPY can also make big moves in either direction, but we can see from this historical examination (which covers the Financial Crisis) that the max loss exposure in VIX is somewhat higher than SPY.

If you're an active trader in SPY and/or VIX, or are looking to get more involved trading them, the research presented in this episode of Market Measures may help you optimize your approach. At the very least, one needs to be aware of the significant risk represented by short calls in VIX when volatility explodes.

If you want to learn more about trading the VIX, we also recommend a recent installment of Options Jive.

Thanks for reading!


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.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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