VIX Futures Traders Finally Getting Complacent

By Tom McClellan

Highest priced VIX futures contract
February 17, 2017

The recent story about low readings for the spot VIX Index is well-reported.  What has escaped the attention of many is that prices are now finally coming down for VIX futures at the long end of the maturity spectrum.

The spot VIX has been below 15 for most of the time since July 2016, except for a brief spike up to 22.51 on the Friday before the November 8, 2016 federal elections.  Despite the spot VIX remaining low, the highest priced VIX futures contracts have been fairly steadily above 20. Usually the highest priced contracts are the farthest out expiration month contracts. Just recently, they started creeping lower, down into the 19s, then the 18s.

Something different is happening now.  The current far-month contract is Oct. 2017, which closed on Feb. 15 at 17.675. That is the lowest number for the highest VIX futures contract since August 2015, just before the China-fueled mini-crash.

This week’s chart shows a plot depicting the value of the highest priced VIX futures contract over time. The prices are inverted to better align with the price action.  Instances with the highest priced VIX futures contract being below 18 are pretty rare, and usually associated with meaningful tops.  That “rule” did not work during QE3, but it is fair to say that a lot of things did not work then.  The rule started working again after QE3 was ended.

You have probably heard of the several VIX related ETNs that are available now. Some folks do not know that those products are not actually tied to the spot VIX, but rather they own VIX futures, either long or short depending on the type of ETN.  A big winner this year is XIV, the short VIX futures ETN, which has more than doubled since the November elections.  XIV goes short the two VIX futures contracts nearest to expiration.  It has a nice upward bias because of the natural time-decay of VIX futures pricing.

Here is what that term structure looks like as of Feb. 16, 2017:

VIX futures curve

Continue reading VIX Futures Traders Finally Getting Complacent

VIX Well Below Its Futures Contracts

By Tom McCellan

VIX Well Below Its Futures Contracts

VIX spread from its highest priced futures contract
September 30, 2016

When there is a big disagreement between the value of the spot VIX Index and the prices of its futures contracts, that carries important information about trader sentiment.

As of the close on Sep. 28, 2016, the spot VIX was well below all of its futures contracts.  The chart above measures the spread between the spot VIX and the highest priced VIX futures contract, which is currently June 2017.  The direct message is that VIX futures traders do not think that VIX value in the 12s is likely to persist all the way until the futures expiration.  The image [below] shows a recent quote window.

VIX futures quoteWhen the spread gets this big, it can be a sign of excessively complacent trader sentiment about the near term risk picture.  The VIX Index is calculated based on the volatility premium that gets priced into SP500 Index options.  When traders are complacent, they drop the price of insurance, much like a homeowner’s insurance company reduces policy premiums in Florida when there have not been any hurricanes for a while.

A VIX futures contract, however, is priced based on whatever a trader is willing to accept to buy or sell that futures contract.  Since there is no physical product like in gold or corn futures, the VIX futures are settled for cash at the value of the spot VIX Index on contract expiration day.

If the VIX really were to stay in the 12s all the way until June 2017, then a futures trader who was short the June 2017 VIX futures contract could make a lot of money as prices eventually decay back down to meet the spot.  But the VIX tends to wander around a lot over a time span like that.

The chart above may not adequately portray the full context of the recent high spreads between spot and the highest futures contract, so here is a longer term look.

VIX spread from highest VIX futures contract

It is pretty rare to see the spread get up as high as it has recently, and when it does happen, there tends to be a meaningful selloff in stock prices in order to restore a healthy level of worry into the hearts of overly bullish speculators.  I expect to see the same outcome this time.

Subscribe to Tom McClellan’s free weekly Chart In Focus email.

Related Charts

Sep 22, 2016

Bond Market Knows What Fed Should Do
Sep 10, 2015

VIX Above All of Its Futures Contracts
Jan 02, 2014

VIX ETN Not Right For Investors

Chart In Focus Archive

Stop Wasting Energy on the VIX

By Chris Ciovacco

  1. The VIX Fear Index is arguably the most over-analyzed tool on Wall Street regarding its real-world predictive powers relative to the long-term path of the stock market.
  2. The common argument is when the VIX spikes, it is indicative of rising fear, and thus stocks typically drop when the VIX rises.
  3. The VIX measures “expected near-term volatility”, which is quite a bit different than fear or long-term economic concerns
  4. Can stocks go up when the VIX rises significantly from low levels? You can decide for yourself after reviewing a historical example.

Sounding The Low VIX Sirens For Stocks

If you follow the markets regularly, you have probably run across similar passages to the one shown below from a May 28, 2014 MarketWatch article:

As the VIX continues to sink closer to its historic low of 9.39, many commentators are now discussing the VIX as a “complacency index.” As the VIX falls, it signals increasing levels of investor complacency. Because economist Hyman Minsky taught us that periods of high volatility follow periods of low volatility, many investors are beginning to worry that a “Minsky moment” could be lurking around the next corner that would send volatility higher, increase the risk premium for holding stocks and cause prices to sink.

We agree with portions of the quote above, with two exceptions: (1) when the VIX rises from low levels to higher levels, it does not necessarily mean the stocks are in big trouble, especially when viewed from a longer-term perspective, and (2) low VIX readings do not necessarily align with caution-oriented “complacency”.

Retail Sales Align Nicely With The VIX Story

Having worked on Wall Street for over 20 years, we can confidently state evidence is always available that logically aligns with the bearish narrative for risk-related assets; the same can be said for a bullish narrative. The bearish case got a nice dose of weak data on Thursday, September 15. From Bloomberg:

Sales at U.S. retailers dropped more than forecast in August, indicating a pause in recent consumer-spending strength that has carried the economy.
Purchases declined 0.3 percent from July, the first drop in five months, after a revised 0.1 percent advance in the previous month, Commerce Department figures showed Thursday in Washington. The median projection of economists surveyed by Bloomberg called for a 0.1 percent decline. Excluding cars, sales unexpectedly fell 0.1 percent.

Low VIX Means Trouble For Stocks, Right?

As recently as September 8, 2016, the VIX was hovering near the low end of its long-term range dating back to the 1990s. If that means historic complacency, then logic would tell us that when the VIX rises from very low levels, it must mean rising fear and bad times ahead for stocks…right? That logic often holds in the markets, meaning the VIX can be and is a useful tool for stock investors. However, the strength of a stock market indicator lies in its consistency.

Continue reading Stop Wasting Energy on the VIX

Stocks at Risk?

By Biiwii

This is as much a test post for the new site as it is a market commentary. is going to be primarily a guest site ( will be my main posting venue for public as well as premium content) featuring the usual cast (Ashton, Hoye, Saville and others I think have quality, typo free financial market content) plus other quality writers I may find along the way.

Anyway, let’s see how a chart of the VIX looks with the current site format.  I know how it looks for stock market players; it looks like they have unwound all of their apprehension from earlier in the year.