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Trading VIX Derivatives: Trading and Hedging Strategies Using VIX Futures, Options, and Exchange-Traded Notes by Russell Rhoads

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Chapter 12

Calendar Spreads with VIX Futures

Apopular strategy with individual traders involves trading the spread between two VIX futures contracts that have different expirations. These spreads are commonly referred to as calendar spreads. The goal of a calendar spread is for the long position to outperform the short position or for the spread between the long and short to widen. Although consisting of two positions, these trades should be thought of as a single trade, and the profit or loss of both legs of this spread should be combined when analyzing the outcome.

Calendar spreads using futures contracts are common and have been around as long there have been commodity markets. For decades, traders have been selling one soybean contract and purchasing another in an attempt to benefit from the price changes between the two. Often there are seasonal patterns that traders attempt to capitalize on each year. This holds true for a variety of financial markets, too. Spreading VIX futures contracts versus each other is another strategy in a long line of calendar-spread strategies.

In the past, there have been seasonal trends of higher and lower volatility in the stock market. However, due to how new VIX futures trading is to the marketplace, there is really only about four years of valid data for testing seasonal theories. As more price history is accumulated, it is possible that seasonal tendencies may emerge. However, during what may be considered a normal market environment, there ...

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