VIX to S&P 500 Correlation Over the Weekend: Are Market Makers Using S&P 500 Weekend Returns to Price VIX on Monday Morning?

Wan Jia Lin

Applied Economics and Finance, 2023, vol. 10, issue 1, 3843

Abstract: This paper studied the correlation between the S&P 500 ETF (SPY) weekend returns and the VIX changes. Two distinct patterns are found- (1) VIX is dropping intraday and rising overnight; (2) a negative SPY weekend return correlates with VIX weekend change. We found the negative correlation is statistically significant (P=0.000). This proves that option market makers are using SPY Friday overnight returns to adjust the implied volatility the next morning. This may lead to a profitable options model that sells high IV options closing on Friday and buys them back next Monday, especially before the earnings announcement.

Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://redfame.com/journal/index.php/aef/article/download/5819/6020 (application/pdf)
https://redfame.com/journal/index.php/aef/article/view/5819 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rfa:aefjnl:v:10:y:2023:i:1:p:3843

Access Statistics for this article

More articles in Applied Economics and Finance from Redfame publishing Contact information at EDIRC.
Bibliographic data for series maintained by Redfame publishing ().