Have you ever noticed that VIX seems to go lower on Fridays (VIX Weekend effect) and jump back higher on Mondays (VIX Monday effect)?
The concept makes sense because VIX is calculated with SPX options so the Weekend effect and the Monday effect likely are due to a combination of the following reasons.
- The market closes down SPX options positions before the weekend (avoid time decay, avoid unexpected news etc.)
- The market opens new SPX positions on Monday (to continue the position that was taken off on Friday)
- Many Weekly and Monthly options expiry occurs on Friday
While there are some in-depth analyses or explanations on this topic out there, I was looking for a simpler data visualization to see the relationship between VIX and SPX.
It is known that VIX and SPX have an inverse relationship, but I wanted to see how that plays out with the Weekend effect and the Monday effect.
Since I couldn’t find one, I decided to do a quick analysis myself.
VIX & SPX Data Analysis
Looking at only VIX data, it shows clearly that Monday does indeed have a higher percentage of VIX going up, while Friday has a higher percentage of VIX going down (yellow cells).
Date range: 10 years (8/6/2012 – 8/5/2022)
When aligned VIX with SPX data, something really interesting pops up.
Since VIX and SPX have an inverse relationship, (VIX goes up when SPX goes down and vice versa), it makes sense that the majority of the data would fall in those cells.
However, it’s rarer to see both VIX and SPX are “Up & Up” or “Down & Down”. So it is interesting to see Monday has more “Up & Up” while Friday has more “Down & Down” days (yellow cells).
When expressing these numbers in percentages, we can see clearly the presence of the Weekend effect and the Monday effect on these “Up & Up” or “Down & Down” days.
As they are both higher than the total average of 10%.
In other words, VIX on Mondays and Fridays tend to move up and down respectively disregarding which way the SPX moves.
Based on this data, if you are shorting VIX options for income generation, it is better to close it on Fridays and open it on Mondays.
While if you are opening VIX options for hedging, it’s better to open it on Fridays and close it on Mondays.
Of course, the above statements assume the market condition is aligned with those days (Monday or Friday) at the time to execute such trades.