VIX to S&P 500 Correlation Over the Weekend: Are Market Makers Using S&P 500 Weekend Returns to Price VIX on Monday Morning?

Abstract

This paper studied the correlation between the S&P 500 ETF (SPY) weekend returns and the VIX changes. Two distinct patterns are found: (1) VIX is dropping intraday and rising overnight; (2) a negative SPY weekend return correlates with VIX weekend change. We found the negative correlation is statistically significant (P=0.000). This proves that option market makers are using SPY Friday overnight returns to adjust the implied volatility the next morning. This may lead to a profitable options model that sells high IV options closing on Friday and buys them back next Monday, especially before the earnings announcement.