A Tale of Two Sessions: VIX ETPs in the Daytime vs Overnight

Historically, the stock market has been much stronger in the overnight (close-to-open) than in the daytime (open-to-close). No news there, this is a well-established observation that has been written about many times in many places.

To illustrate, the graph below assumes we only held SPY (S&P 500) in either the daytime (blue) or overnight (orange), since its inception in 1993:


Nearly all of the market’s gains of the last 20+ years have come in the overnight, while most of the market’s volatility and drawdowns have come in the daytime.

Note however that this effect has largely disappeared in more recent history. Below I’ve recreated the same graph, this time beginning in 2009.


But this post isn’t about the S&P 500. In this post I look at the volatility ETPs XIV (inverse VIX) and VXX (long VIX), how they’ve performed in the overnight vs daytime, and whether they follow this same pattern.

First, VXX (long VIX) since inception in 2009:


Prior to 2011, the overnight session was much more bullish than the daytime.

Note that this is the opposite of what we saw with equities. Remember that SPY and VXX are inversely-related. When SPY increases, VXX tends to fall (and vice-versa), so VXX’s outperformance in the overnight is the opposite of what we saw with SPY.

Since 2011 however, both sessions have performed equally poorly (albeit with significantly more volatility in the daytime session).

Next, XIV (inverse VIX) since inception in late-2010:


If we ignore the one major drawdown in 2011, there has been no significant difference between XIV’s daytime and overnight sessions. Note however that XIV launched later than VXX, so this period of no difference matches the period of no difference in VXX.

Wonk note: the mid-term ETPs ZIV and VXZ follow the same pattern as their short-term cousins shown here.

What to make of all of this?

Nothing for now. At this moment in history, none of the assets examined perform differently in the daytime vs overnight, so for now this is all just an interesting bit of data.

But if that changes and in the future the stock market’s two sessions begin behaving differently again, that difference may (in some yet to be seen way) carry over to VIX ETPs and may present a trading opportunity.

Click to see Volatility Made Simple’s own elegant solution to the VIX ETP puzzle.

Good Trading,
Volatility Made Simple

Posted in Volatility Mechanics.