VIX Futures Contango Bubble
Truth be told, there is no such thing as a “contango bubble,” but I like how the two words look juxtaposed and it is Friday…
Bubble or not, the VIX futures are stretched to an extreme that I do not ever recall seeing and to the extent that the grapevine is whispering to Adam Warner of the Daily Options Report that the differential between the first month and third month VIX futures is at its highest level ever. (Note to self, why doesn’t the grapevine ever whisper to me?)
The chart below, courtesy of FutureSource.com, shows the difference between the VIX third month futures and front month futures (VX V0 – VX N0 in current VIX futures parlance) going back about six months. Personally, I tend to get excited when the third month VIX futures rises more than 2.00 higher than the front month, as this frequently suggests that the VXX negative roll yield contango play is starting to set up.
Some 17 months after its launch, I probably still get more questions about VXX than any other subject. As much confusion as there is about VXX, I think it is probably time to come out with an extended look at this volatility product in the next week or two.
For more on related subjects, readers are encouraged to check out:
- VIX Spike and VIX Futures Contango Means…
- VXX Calculations, VIX Futures and Time Decay
- VIX Term Structure and VIX Forecasts
- VIX:VXV Sell/Short Signal
- Is the Fear Bubble Bursting?
- VIX Futures Starter Kit
Disclosure(s): short VXX at time of writing
