VIX and the Santa Claus Rally

A couple of days ago JJ Kinahan from TD Ameritrade and a good friend of The Options Institute wrote a blog for Forbes.  His blog was about the period of time between Christmas and New Year’s. In the financial markets world this is considered a bullish time for stocks and is often called the Santa Claus rally. His comments can be found at the link below.

Since everything I do begins and ends with VIX I decided to take a look at what VIX has done each year over this time period. I was honestly surprised by the results. I took the VIX closing price the day before Christmas and the closing price on the last day of the year for each year from 1990 to 2013.   If the expectation is that stock prices move higher over this time period, then we would also assume that VIX would be moving lower. That assumption made me do a double take when I complied the table below.

VIX Santa Rally

Note that only three of the twenty four years on this table saw VIX move lower. Part of this may be attributed to the holiday impact on VIX where some of the value drops due to an extra day and a half off for Christmas. However, there are several double digit gains on the table above and that’s more than just the extra days off. As President Reagan use to say, trust but verify. This time the verification process yielded some interesting results.