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Calendar Effect in Volatility

I received a few posts suggesting that the reason for the lower December VIX futures versus the January VIX futures is the “Calendar Effect”.  This implies that because December is a slow month due to the holidays, the December VIX futures contract should be priced lower.  If you look at my previous post regarding S&P 500 returns by month, you see that January and December do not look all that different.  Strong positive average returns for both months.  I did provide some analysis about volatility by month, but I thought I would expand it with percentile rankings:

Seems like a lot of volatility in September, October and November

The fall looks very volatile to me, but I would say December and January look awfully similar.  Maybe I should only look at recent history as a guide?

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3 Responses

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  1. Charlie says

    Load up on December gamma then?

  2. SurlyTrader says

    I think we are going to see some decent volatility going through November, but I still haven’t gotten on board with the idea that a financial market freeze up will happen like 2008. With volatility trading where it is, gamma does not seem extremely cheap unless you offset the cost with out of the money options. If we get another run at 1200 though, it might provide an opportunity to add a nice long gamma position.

    I’m personally thinking that the flare up in longer term volatility is setting up a nice entry point for a short 3-12month vega position.

Continuing the Discussion

  1. Santa Claus Rally? | SurlyTrader linked to this post on December 6, 2011

    […] events, superbowls, and the ever enigmatic return of the stocks market.  I have looked at the seasonality of volatility by month and the seasonality of returns by month, so why not hope for a santa claus […]



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