VIX futures term structure
VolatilityAdvanced
VIX futures are often priced above the spot VIX in contango, and sometimes below it in backwardation. A term-structure rule sells near VIX futures when the curve is sufficiently in contango and buys them when it is in backwardation, sometimes hedged with equity-index futures. It is a volatility-futures trade, not a signal to buy or sell the VIX index itself, which is not tradable.
Not investment advice. Nothing here is a recommendation to buy or sell anything. Backtests and historical studies are not guarantees, and a rule that worked in one sample can fail in the next. Trading can lose money. Links are for education, not endorsements. Do your own research.
- Rules
- Compare the front VIX future that has enough days left to settlement with spot VIX. If the daily roll down the curve is above a stated contango threshold, short that future. If the curve is in backwardation past a threshold, cover or go long. Hedge the equity exposure if the research design does, and roll before settlement. Size for a volatility spike that marks the futures limit-up.
- Where AI fits
- AI can maintain the contract calendar, compute the basis without looking ahead, and simulate the hedge ratio from past data only. It can force a risk cap that flattens the position when the curve flips. A chatbot that says 'sell vol because contango' has not specified the contract or the hedge.
- Markets
- VIX futures, and mini equity-index futures if the hedge is part of the rule. Listed volatility products that promise the same thing are not this trade.
- Timeframes
- Daily checks. Holds are measured in days, with an explicit roll.
- Risks
- Short volatility looks steady until a crisis, when the curve snaps to backwardation and losses arrive together. The hedge ratio is unstable. VIX futures converge to a print that can gap. Exchange-traded products that track this idea have path and roll risks of their own.