Last week, tastylive looked at selling naked options after multi-day moves in the S&P 500. While timing and scaling on the Put side tended to be beneficial, Calls were far less predictable and waiting for multi-day rallies did not necessarily yield a higher win rate.
With the inverse correlation of volatility to the S&P in mind, our team aimed to take last week’s information further by determining if there was any merit to selling rallies in volatility.
To test this, our Research Team sold 40 delta Vertical Call Spreads after consecutive-day rallies in VIX. Looking at data from 2005 to present in the expiration cycles closest to 45 DTE, we compared:
- All Occurrences
- All Up Days
- Consecutive up days (1, 2, 3, 4, 5, and 6)
One initial observation was that consecutive up days in VIX seemed more irregular than consecutive down days in SPY. This may be attributed to volatility expansion with minimal market movement. Additionally, on consecutive days when VIX was up, its levels were not linear, likely because of the already depressed levels in the underlying.
When analyzing success rate and average P/L, selling ATM VIX Call Vertical Spreads did prove to be historically profitable, though not as drastically as Short Puts in SPY after consecutive down days.
For more information on Buying & Selling in Weakness & Strength see:
“Selling Puts: Multiple Down Days” January 10, 2017
“Selling Calls: Multiple Up Days” on January 12, 2017
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