VIX Term Structure

MacroVar monitors the dynamics of the VIX term structure in Risk Management models as a market timing signal to predict market risk and short-term expected stock returns. The VIX term structure is presented below and details on how MacroVar models the VIX term structure.

VIX Term Structure Data & Analytics

MacroVar VIX Term Structure model

MacroVar monitors the VIX futures slope using the following process:

• MacroVar uses end of day prices for VIX spot and VIX futures of 1 month, 2 months, 3 months, 4 months, 5 months and 6 months.
• For each date and for a specific back month the difference between the specific contract and the contracts before it are calculated and averaged. For example the 2 month future contract slope is estimated by calculating the difference between the 2-month future contract and the 1-month future contract, the 2-month future contract and VIX spot, and both are averaged.
• Once averages for all future back months are calculated, the average is estimated

VIX Term Structure Explained

CBOE Volatility Index also known as the VIX was introduced by Chicago Board Options Exchange (CBOE) in 1993 and was the first publicly available volatility index. In 2004, the CBOE Futures Exchange (CFE) introduced futures contracts with VIX as the underlying asset and VIX options were launched in 2006. The difference between future and cash prices is often called roll yield and it is positive when the VIX futures term structure is in contango (when the spot price is lower than the future prices) and negative when it is in backwardation (when the spot price is higher than the future prices).

MacroVar models have proved that VIX futures term structure is a very important contrarian market timing indicator. When the VIX term structure has a negative slope indicating extreme backwardation, the stock market is oversold and a market recovery is imminent. The VIX term structure must be used in conjunction with the rest of the risk management tools offered by MacroVar.