VIX is the Cboe Volatility Index. It shows the market’s expectation of 30-day volatility [for the S&P 500 index] and has been around for over 25 years. On March 24 2004, Cboe introduced exchange-traded VIX futures contracts, and in Feb 2006, VIX options. It is well documented that negative correlation of volatility and stock-market returns exists, suggesting there may be a diversification benefit to including volatility instruments in an investment portfolio.
VIX futures allow market participants to express their opinion or otherwise hedge volatility movements up to 8 months away. During calm times in the market, the farther in the future one looks, the greater [potential] uncertainty exists. Simply put, there is more time for more [negative] things to potentially happen. A chart plotting VIX futures during calm markets would go up and to the right. This phenomenon is called “contango.”
During tumultuous times in the markets, the farther in the future one looks, the less [potential] uncertainty exists. Simply put, if the markets are currently chaotic, it is anticipated that the chaos will eventually subside. A chart plotting VIX futures during tumultuous markets would go down and to the right. This phenomenon is called “backwardation.”
There are also times when portions of the VIX futures term structure are in contango while others are in backwardation.
Typical trades involving VIX futures include going long / short a particular forward month (expressing an opinion about vol at a particular point in time) and going long / short the spread between different forward months (expressing an opinion about how vol will change over multiple time frames).
In this post we’ll take a look at the historical performance, binned by year, of VIX spot price, VIX futures months 1 through 8, and the spread characteristics between neighboring futures months.
VIX futures data from Jan 2013 through present is sourced from Cboe. VIX futures data from May 19 2004 through Dec 31 2012 is soured from 3rd parties. The consolidated and pivoted master dataset used in this study is available for purchase and immediate download from the trade log store.
Let’s dive in!
Handling the Data
Historical VIX open/high/low/close prices for all dates were downloaded from Cboe. Historical VIX futures open/high/low/close/settle prices for dates from Jan 2013 through present were downloaded from Cboe. Historical VIX futures open/high/low/close/settle prices for dates prior to Jan 2013 were sourced from 3rd parties.
VIX futures datasets were pivoted into their respective monthly tables.
Data was not cleaned or modified in any way. Instances where a value was expected but absent were treated as a null value.
Source data has gaps across some date ranges. “Count of observations” is provided as column in the tables to help convey where data may be “thin.”
Each VIX futures contract was held till expiration. There were no “early” rolls performed when calculating the spreads.
To calculate the VX1-VX2 spread, measured in points: VX2 – VX1
To calculate the VX1-VX2 spread, measured in percent: (VX2 – VX1) / VX1
VIX Futures Results
VIX Spot Price
Measured in absolute points.
Measured in relative percent.
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