Introduction to VIX Term Structure VIX Term Structure is an important concept for option traders, but it’s an advanced topic for new traders to grasp, so in this article, I’ll attempt to break it down into A detailed explanation of contango is available here: “VIX contango explained.” The VIX contango is currently around 10%. The VIX futures term structure details the implied volatility over the next few months. Contango is a situation in the price action of the commodities market where the futures forward price of a commodity is more than the spot price expected of the futures contract at its maturity and delivery date. Voiceover: Let's do a quick review of contango and backwardation because they really are opposites of each other, but they're used in different context, sometimes with the exact right meaning, sometimes with the not so right meaning, so let's clarify what we're talking about. You will also gain a thorough understanding of the key concepts of Contango and Backwardation. Retrieve and display historical VIX term structures all … If you trade VIX futures (and if you ever bought/sold UVXY you do) then contango and backwardation periods are important to monitor. However, hidden in the VIX futures term structure clues for when the equity market bottoms are visible. This morning (Sunday) I got a request from Eric Thompson at Thompson Capital Management to look into streaks of backwardation in VIX.  There are different ways to measure backwardation.  You will hear pundits say we are in backwardation whenever VIX closes higher than the front month future.  Most market participants like to look to the … M1:M2 VIX Futures Explained – Contango, Backwardation, VXX – iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) by TradingETFs.com May 1, 2019 written by TradingETFs.com May 1, 2019 The VIX quoted in-day-to-day life is the CBOE Volatility Index (VIX) spot price (today’s VIX price). Real-time analysis of the VIX Futures Curve (VX), the CBOE spot VIX indices (VXST, VIX, VXV, VXMT) and the S&P 500 index (SPX). Some traders assume that UVXY tracks the CBOE Volatility Index but in fact that is not true. Contango and backwardation are two concepts related to futures contracts that need to be understood in VIX trading because VIX ETFs buy or sell some combination of futures contracts. Like other asset classes, VIX futures in normality is in contango, with a positive gradient as the volatility increases with maturity. Learn about VIX term structure and why it's important. En el siguiente gráfico, hemos construido una curva continua de Contango/Backwardation utilizando los datos del contado del VIX y del contado del índice VXV. VIX Contango Oscillator = VIX – 45 + 1000 * (VIX2/VIX1 – 1) or in other words. The term structure of VIX (how the price of future contracts relates to the spot) is normally in contango (upward sloping) meaning that VIX futures have a higher price than the spot. VIX futures tend to rise when the S&P 500 falls -- the correlation of returns is about -0.7. However, the futures used to create ETPs like the iPath S&P 500 VIX Short-Term Futures ETN (VXX) are based on the future VIX price, which is almost always more expensive than the spot price. Average M1:M2 contango per year and benchmark return If you look at those numbers above, you can see a clear relationship between the average M1:M2 contango levels in any given year and the performance of shorting the most popular volatility … Backwardation generally happens when there is elevated fear and volatility in the market, and has occurred on roughly 17% of trading days since 2004. Annualized, that’s a 330% or 440% annualized head wind. ... As a result, the strike range and total number of options included in VIX calculation vary over time, in line with changes in S&P500 index value and changes in quotes on individual S&P500 options. You’ll often hear financial media pundits refer to it as the “fear gauge” or “fear index” of the stock market, which is mostly true. Portfolio managers buying VIX futures to protect their portfolio are paying in effect large sums to VIX sellers for that. Markets Home Active trader. As time passes, VIX futures contracts slowly converge towards the VIX Index. These heavy losses occur when the VIX futures that underlie these funds are in a price/time arrangement called contango. That means if VIX remains at current levels, the contango from spot to front month is 13%, and 15% between September and October. If the VIX Index is below the near-term VIX futures, the contracts will lose value over time, leading to losses in VXX. When the VCO goes above 25, we have a rally under way. XIV sells short the first two front months of the VIX futures contract and VXX buys the first two front months and so both are affected by contango and backwardation. Under "normal" market conditions, the VIX Index is typically below the near-term VIX futures contracts (a state of "contango"). This is very common in VIX futures – in the long run, contango occurs vast majority of time, which is due to the skewed and mean reverting nature of the VIX and volatility in general (long time at low levels, with occasional big but mostly short-lived spikes). Contango may seem daunting to those new to investing or unfamiliar with futures contracts, but it doesn’t have to be. That ratio chart is presented here with the UVXY/VIX in the background. Simply put, contango occurs in a market when futures prices for a … Hear from active traders about their experience adding CME Group futures and options on futures to their portfolio. Our proprietary indicators, the VIX Contango Oscillator (VCO) and the VIX Term Roll Oscillator (VTRO), aggregate volatility expectations across time and help investors identify opportunities to exploit futures contango rollover in volatility ETFs for … That's the price difference between today's VIX and next month's VIX. 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