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The impact of net buying pressure on VIX option prices

Yi‐Wei Chuang, Wei‐Che Tsai and Ming‐Hung Wu

Journal of Futures Markets, 2020, vol. 40, issue 2, 209-227

Abstract: This paper analyzes the impact of intraday trading activity on option prices in the Volatility Index (VIX) options market. Our results show that there is a temporal relationship between net buying pressure (NBP) and changes in implied volatility of VIX options. Moreover, an increase in NBPs lowers the next‐day delta‐hedged option returns. Using several measures proxying for limits to arbitrage, the average levels of the implied volatility curve rise when limits to arbitrage are severe. A trading strategy in the VIX futures market constructed by using the NBP generates an average annualized return of 10.09%.

Date: 2020
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