Simulating Volatility ETP Open and Intraday High / Low Values

Updated: Nov 15th, 2017 | |

Previously I’ve done simulations, based on VIX futures, of volatility Exchange Traded Products (ETPs) back to 2004.  In these simulations I only generated the closing values, but I’ve had requests for open / high / low (O/H/L) values.   Now I&8217;ve extended my backtests to generate ETP opening and intraday highs and lows for many of the short and medium term volatility funds—specifically VXX, VIXY, TVIX, UVXY, XIV, SVXY, VXZ, and ZIV,  in addition to the closing values.

The volatility ETPs (complete list of USA funds) are all based on two or more sets of VIX futures.  The CBOE provides historical open/high/low/close/settlement values for these futures starting in March 2004.  Since the indicative values (IV) of the volatility ETPs are directly tied to these futures, the futures’ opening values can be used to accurately compute the ETP&8217;s opening values—as long as the VIX futures and ETPs start trading at the same time of day.   This was the case until December 10th, 2010 when the CBOE starting shifting the opening times of VIX futures—more on this later.

The ETP intraday high / low values can also be calculated using the appropriate VIX futures intraday values but one additional assumption must be made—that the futures hit their intraday highs and lows at the same time.   I didn’t expect that assumption to introduce a huge amount of error with the simulated values, but I wanted to verify that by comparing my simulation results to actual data.

To evaluate the magnitude of these errors I used O/H/L indicative value data from Barclays’ VXX short term volatility fund from June 1st, 2012 through July 16th, 2012.   I would have preferred pre-December 2010 data, but I don’t have access to intraday IV data that goes that far back.   A chart showing the relative percentage error is shown below.

Considering the uncertainties, worst cases errors in the +-3% range seem reasonable.  Sixty five percent of the data points had errors less than 1%.   Six values had errors less than 0.01%, which suggests to me that my methodology is correct.

The next chart shows the differences between the actual trades (not the IV values) and simulated O/H/L values for VXX, starting January 30, 2009.

This chart illustrates a couple of additional difference terms that emerge when comparing the IV values to real trade data.  First of all, there’s no guarantee that a trade will occur coincident with the open, close, or intraday highs / lows of the ETP’s IV.   For example, the big -25% dip for the highs occurred on 6-May-2010—the Flash Crash.  It’s not surprising that no one traded at the indicative intraday high of 42.13 (open was at 23.34!).

Other differences come from bid/ask spreads and tracking errors.  The indicative value is computed from real time VIX futures values and updated every 15 seconds, but volatility fund market makers are not obliged to trade at that value.  Unless the fund is heavily traded the spread between the bid and ask price will be at least several cents and if demand is unbalanced on the buy or sell side the offered spread values may be significantly different from the IV value.

This next chart zooms into the +-5% portion of the chart.

The 22 trading day moving averages show the impact of the CBOE’s shift in the open time starting in December 2010—the average difference between the simulated IV values and trade data moves from close to zero to somewhere between +-0.5% and +-1.0%.

I cut off the O/H/L simulation on the 25th of October, 2013 because on the 28th the CBOE changed the Tuesday through Friday opening times to 4:30PM the previous day.  This change was in preparation for the eventual move to nearly 24 hour VIX future trading which began June 2014.   This change meant that the VIX futures were trading many hours before the volatility ETPs began trading—making VIX futures an unreliable proxy for ETP open/high/low levels.   The close time, 4:15PM ET, has remained consistent, so VIX futures can still be used to compute ETP closing values.

I verified with the CBOE that the historic VIX futures data published on its website tracks the shifted opening times and is no longer synchronized with the ETP trading times.    In the case of my simulations, there’s really no harm, because their primary value lies in predicting what the ETP’s O/H/L values would have been from March 29th 2004 until the various volatility funds started trading.    Actual trade O/H/L values exist for short term volatility ETP types (1X, 2X, -1X) prior to the 10-Dec-2010 shift in VIX trading hours.

The Spreadsheet

For more information on my ETP O/H/L/C simulation spreadsheet see this readme.  The spreadsheet includes the formulas that convert from various indexes (e.g., similar to SPVXSTR, etc.) to the IV values, but it does not include the VIX futures values or the index calculation formulas.

If you purchase the spreadsheet you will be eventually be directed to PayPal where you can pay via your PayPal account or a credit card. When you successfully complete the PayPal portion you will be shown a “Return to Six Figure Investing“ link.    Click on this link to reach the page where you can download the spreadsheet.  Please email me at [email&160;protected] if you have problems, questions, or requests.

Simulation from March 2004 to Oct 2013 of Open / High / Low Prices
Product Options
OptionPriceDownloadFile Size
1OHLC Simulation for VXX,VIXY,TVIX,UVXY,XIV,SVXY, VXZ, ZIV$199.00SFI ETP OHLC backtest all 7Mar17 5.60MB
2OHLC Simulation for VXX$59.00SFI ETP OHLC backtest VXX 6Oct17 3.89MB
3OHLC Simulation for XIV$59.00SFI ETP OHLC backtest XIV 6Oct17 3.79MB
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Order Simulation from March 2004 to Oct 2013 of Open / High / Low Prices

Your credit card statement will show the following description on this transaction: "PAYPAL*VH2SOLUTION". After you have paid look for a "Return to Six Figure Investing" link. This will take you to a page where you can download the product.

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Wednesday, November 15th, 2017 |
  • Gavin Ripley

    Hey Vance, I&8217;m wondering if you have ever come across November 15, 2007 in your backtests? The CBOE data shows M2 &8220;low&8221; spiked down to 18, but the M1 &8220;low&8221; did not have a similar spike down. Seems strange that they both wouldn&8217;t have spiked down together. I&8217;m guessing just some sort of anomaly in the data. Cheers!

  • Hi Gavin, Yes, obviously a bad data point. I use 25.1 as the low for M2 that day. I came up with that by using the same percentage down from open (-1.38%) as the M1 low was from its open.