CBOE Short-Term Volatility Index (VXST – 10.84) futures trading commenced on Thursday morning at the CBOE Futures Exchange with four contracts listed expiring over the next four weeks. Friday VXST dropped pretty dramatically, 1.22 or just over 10%, which was partially attributable to the ‘holiday weekend effect’ that puts some extra pressure on volatility indexes going into three day weekends. I decided to do a little digging on the impact of a three day weekend on VXST and found two things. One surprised me and the other did not.
We have VXST closing price data at CBOE going back to the first day of 2011. Since then there have been seventeen (including this weekend) three day weekends. I took a look at the one day change for VXST going into a weekend with a Monday holiday and it turns out the one day change for VXST had been lower 11 of those 17 Fridays. I honestly expected a higher number. My plan was to also take a look at what VXST did price wise on the Tuesday following the three day weekend.
Since we do not know what VXST will do price wise this coming Tuesday I have only sixteen data points for the Friday to Tuesday performance over a three day weekend. In this case VXST has moved up all sixteen of those Tuesdays. The average rise in VXST has been 12% on these sixteen Tuesdays.
The curve below shows the closing VXST index along with the four futures contract closing prices on Friday. Note how steep the drop is from the near dated February 26th VXST Future (14.55) and VXST (10.84). I was scratching my head over that one until I noted the consistent rebound in VXST that has historically occurred after a long weekend. As always the numbers fall into place and everything makes sense to me.