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Volatility Contraction on Up Days

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How much does implied volatility contract when there are up days?

Study
  • SPY
  • 2005 to present
  • Recorded the magnitude and frequency of volatility contractions when the market moved up

We find that the when the market moves up on any day, we see a vol contraction of 5% on average. When the market moves up by more than 1%, we see a vol contraction of 8.5% on average.

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