CBOE has historical data for the CBOE Short-Term Volatility Index going back to the first day of 2011. This weekend marks the 21st three-day weekend since January 1, 2011. Those of us that spend lots of time focusing on volatility indexes are very aware that there is a weekend effect that puts downward pressure on indexes like VXST and VIX on the final day of the week. Also, the downward pressure on VXST is more pronounced than the impact on VIX especially around a long weekend. Since this is one of those three day weekends and I do not really know what to do with myself when the market is not open I spent some time looking at VXST and what has occurred with the twenty instances that the market has been closed for 3 days. The results kind of confirm what we already know.
Of the twenty three day weekends since 2011 VXST has closed lower 65% or thirteen times on the day before the long weekend. That doesn’t sound too significant, but the chance of VXST being lower on any average trading day is closer to 53%. The startling figure is what happens the first day after the long weekend. So far there has not been a post three day weekend trading day where VXST did not close higher. Yes, 100% of the twenty long weekends since 2011 have been followed by VXST closing higher than the close before the weekend.
This is a great fact, but don’t run out and check the calendar for the next three day weekend to get long VXST. The futures tend to discount or anticipate the rebound in VXST that historically has occurred after the long weekend. A good example of this shows up below where the April 23rd VXST future closed almost 3 points higher than VXST on Thursday. There are only two trading days remaining between now and AM settlement for that contract. The traders already know about the three day weekend and are anticipating a move up for VXST when we get back to work on Monday.