One of the most popular indicators of market volatility is the VIX which measures expectations of 30-day volatility. Another such indicator is the VIX9D which measures expectations of 9-day volatility. Can we use the short term VIX9D to improve trade performance?The Study:
- Short Term Expirations (7, 8, or 9 DTE)
- 20 Delta Strangles Held to Expiration
- 2011 – Present (VIX9D only available since 2011)
- Selling in All Scenarios
- Selling when VIX9D > VIX
The VIX9D gives an indication of short-term implied volatility, if we wait to trade shorter term options when the VIX9D is greater than the VIX we don’t see significant trade improvement. However, when we trade shorter term options we see a much greater potential for delta expansion compared to 45 DTE options. Given these results, we prefer to stick with 45 DTE options because they provide more controlled delta.