Thanksgiving Impact On VOLQ

Typically, a volatility index is calculated using a calendar day convention. VOLQ, for example, is a measure of 30-day expected volatility with the 30-day part representing calendar days. The result is a little headwind on a Friday and a little tailwind on a Monday. The Friday headwind occurs as the market adjusts implied volatility down in anticipation of the market closing for two days. Come Monday, the market accounts for no break for the next few days and implied volatility rises a bit. 

A basic example of this is that VOLQ is higher about 39% of Mondays following a non-holiday weekend while VOLQ is typically higher only 34% of non-holiday Fridays. This is more dramatic when there is a 3-day weekend. On the Monday or Tuesday following a 3-day weekend VOLQ has been higher 52% of the time while on the Thursday or Friday before a 3-day weekend VOLQ has risen 32% of the time.

VOLQ percent higher

The holiday that is unique for the markets is Thanksgiving. Years ago, I was at bar where someone asked if Thanksgiving were on a Thursday that year. I hope it was a joke, but I have never been sure. It is always on a Thursday and the U.S. markets close for that day, but is open on Friday due to regulations that call for the markets never close for more than three consecutive days. As Thanksgiving is upon us, I ran some quick numbers for both VOLQ and NDX to see how they both fare during Thanksgiving week. Specifically the day before (Wednesday) and the day after (Friday) Thanksgiving. The summary is in the table below.

VOLQ performance

We have seven observations over the available history for VOLQ and each year VOLQ is lower the day before Thanksgiving and higher the day after. It is a small sample size, but 100% of Thanksgiving weeks follow this pattern. Another interesting observation is that the rebound on each Friday is greater than the drop each Wednesday or the day after Thanksgiving is always a bigger move higher in VOLQ than the day before. Finally, note that NDX results are mixed, bust mostly higher. I included NDX performance to demonstrate that VOLQ slightly disconnects from NDX price changes during Thanksgiving week.

The point is, for Nasdaq-100 traders that use VOLQ as an indicator, be aware that there is a bit of an aberration for VOLQ this week. Especially do not read too much into VOLQ rising on Friday if NDX is also moving higher.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Russell Rhoads, CFA

Russell Rhoads is a highly regarded strategist, educator and consultant – among other things he is perhaps best known as the author of Trading VIX Derivatives, the textbook in the space

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