Original paper
Abstract
This paper examines the impact of FOMC announcements on the intraday behavior of the VIX and VIX futures. We find that the VIX and the VIX futures start to decline immediately after the FOMC announcement, and this decline persists for about 45 minutes after the announcement. The VIX declines by about 3% on announcement days, whereas the nearest term VIX futures contract declines by about 1.40% around the announcement. We further note that the decline in the VIX and VIX futures is inversely related to the increase in realized volatility around the FOMC announcement. We show that on days with an FOMC announcement, a trading strategy, going short on the VIX futures at the start of the day and closing the position at the end of the same day, yields a return of about 10% p.a.
Keywords:Â VIX, VIX Futures, FOMC Announcement, Intraday data
Trading rules
- Begin short position: 9:35 AM EST during FOMC days.
- Instrument: VIX futures contract.
- Initiate position: Sell at the current bid value.
- Exit: 3:30 PM EST on days of FOMC meetings.
- Exit method: At the current ask value.
- No trading on days without FOMC meetings.
Python code
Backtrader
import datetime
import pytz
import backtrader as bt
class ShortVolatilityFOMC(bt.Strategy):
params = dict(
fomc_dates=[],
)
def __init__(self):
self.vix_futures = self.getdatabyname('vix_futures')
def next(self):
current_date = self.datas[0].datetime.date(0)
current_time = self.datas[0].datetime.time(0)
if current_date not in self.params.fomc_dates:
return
if current_time == datetime.time(hour=9, minute=35):
self.sell(data=self.vix_futures, exectype=bt.Order.Limit, price=self.vix_futures.bid[0])
if current_time == datetime.time(hour=15, minute=30):
self.buy(data=self.vix_futures, exectype=bt.Order.Limit, price=self.vix_futures.ask[0])
cerebro = bt.Cerebro()
# Add VIX futures data feed
vix_futures_feed = ...
cerebro.adddata(vix_futures_feed, name='vix_futures')
# Add the strategy
cerebro.addstrategy(ShortVolatilityFOMC, fomc_dates=[...])
# Run the backtest
results = cerebro.run()Make sure to replace the ... placeholders with the appropriate data, such as the VIX futures data feed and the list of FOMC meeting dates.