VIX Term Structure Goes Mainstream!

• Posted by Adam Warner
• on July 21st, 2010

Breaking news in the Journal yesterday. VIX futures carry big premiums!

Suggestions of worry build as one looks forward. The curve of longer-dated contracts rises to around the 33 level for this fall’s contracts before flattening into next year. Those levels aren’t so different from much of June’s harried trading, when the index nine times closed above 30. It had previously surged to the mid-40s amid May’s stock market “flash crash.”

Where have I heard this before? Oh yeah, on this little popsicle stand you’re reading now (and on Bill Luby’s….and on every site that pays attention to options).

And the premium only steepened in yesterday’s VIX bashing. October closed near $32.50, resulting in a thrombolically ginormous closing premium of 8.5. I believe it’s better expressed in dollar premium than percentage premium, but if you prefer the latter, that’s 35.5%.

Even August VIX closed at a 4.5 premium.

Again, the $64 million question is who’s right, the relatively docile VIX, the apprensive futures, or both?

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