Markets are typically volatile, and price movements accelerate during macroeconomic announcements. We have discussed the macroeconomic announcement premium and the related beta arbitrage strategy.
Along this line of research, Reference [1] examined the returns of delta-neutral straddles around macroeconomic announcements. By analyzing these returns, one can draw conclusions about the volatility risk premium (VRP) on announcement dates.
The authors pointed out,
The study found negative returns across all windows across all weighting methods for all macroeconomic announcements. Therefore, there is no evidence that purchasing straddles ahead of announcements is profitable. However, there is still an important comparison to be conducted between the data for all days versus the data for macroeconomic announcements. This indicates if the straddles are priced differently on days of macroeconomic announcement. Equal weighting for macroeconomic announcements shows lower returns than for straddles on all days. Value weighting show inconclusive results as sometimes the straddles on macroeconomic announcements outperforms the entire sample, while sometimes they don’t. Volume weighted straddles on macroeconomic announcements outperforms straddles on all days for all windows in this study.
The other individual macroeconomic announcements such as FOMC, CPI and PPI in table 7 show lower returns compared to the equal weighted returns in table 6. This finding suggests that the risk for these options around the macroeconomic indicators could have been overestimated. The returns around individual macroeconomic announcements in this study are only calculated for equal weighted returns, it would be interesting to also use the other weighting methods. Additionally, it would be interesting to add and remove macroeconomic indicators to this analysis as there might be different effects for other events.
In short, straddle returns are negative, which indicates that the VRP persists even in the presence of macroeconomic announcements.
Let us know what you think in the comments below or in the discussion forum.
References
[1] Carl Windmar, Risk Premium around Macroeconomic Announcements: Evidence from Delta-Neutral Straddles, Lund University, 2025
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