Trouble Comes When VIX Term Structure Inverts

There is a very good presentation from JPM here on VIX and VIX related products. One section that caught my eye was on VIX futures term structure inversion. The presentation is from 2012 – but the data from 1990 says that you don’t see major VIX spikes (over 40) unless the term structure in futures is inverted first. Also, the VIX was around ~20 before going to 40+. IE there aren’t many incidences (or any?) where the VIX is 12 today and 40+ tomorrow. Incidentally I checked August 2015, and the VIX hit ~21 on the Friday before the major spike to +40 (Monday).

Summary: When the VIX term structure inverts you need to be on watch.

JPM VIX futures term structure

 

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