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The impact of net buying pressure on VIX option prices
Author(s) -
Chuang YiWei,
Tsai WeiChe,
Wu MingHung
Publication year - 2020
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.22060
Subject(s) - volatility (finance) , economics , futures contract , arbitrage , implied volatility , futures market , financial economics , econometrics , index (typography) , world wide web , computer science
This paper analyzes the impact of intraday trading activity on option prices in the Volatility Index (VIX) options market. Our results show that there is a temporal relationship between net buying pressure (NBP) and changes in implied volatility of VIX options. Moreover, an increase in NBPs lowers the next‐day delta‐hedged option returns. Using several measures proxying for limits to arbitrage, the average levels of the implied volatility curve rise when limits to arbitrage are severe. A trading strategy in the VIX futures market constructed by using the NBP generates an average annualized return of 10.09%.