Market Measures

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Selling VIX Calls and Call Spreads

Market Measures

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Just like the VIX measures the implied volatility of SPX, VVIX measures the implied volatility of VIX. Can we use this to create a VIX implied volatility rank and use it to structure short premium trades?

The Study:
  • VIX
  • 2005 – Present
  • Sold 45 Days to Expiration
    • 50 Delta Calls
    • 50 Delta / 10 Delta Call Credit Spreads
  • Compared Performance in Various IV Ranks

Because of the pricing of VIX, selling calls and call spreads has been a profitable strategy historically. Waiting for increases in implied volatility rank improves the performance. However, defined risk strategies tend to outperform naked calls because of their defined risk structure. Naked calls can assume large losses when VIX spikes while credit spreads limit losses and maintain nearly identical win ratios and average P&L.

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