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Even with the U.S. fiscal cliff grabbing all the headlines and keeping the VIX from dipping under 15, I still thought I might be able to trot out my annual series of posts on the holiday effect (or calendar reversion):

As it turns out, fears related to the fiscal cliff have trumped the seasonal factors -- at least so far -- and the VIX futures term structure has twisted and turned in a decidedly unusual manner.

The graphic below shows the VIX futures term structure curve from Nov. 27 (the dotted red line) and again today (the solid blue line), eight trading days later. Typically, when there are changes in the term structure the most extreme moves are in the front-month (December) contract, the second largest move is in the second-month (January) contract, and so on down to the back month, which typically moves only about one-third as much as the front month.

What makes the graphic below so interesting is that the front-month contract is up slightly (actually up 0.05 points), while the market's estimation of future implied volatility going out all the way to August has dropped at least 2.2% (July and August) and as much as 3.8% (February). What can we conclude about these changes in the VIX futures? Well, most likely investors are buying protection against a move in December (the VIX futures expire at the open on Dec. 19) and are selling longer-dated VIX futures contracts for February and other months in order to finance the cost of that protection. All that said, the market is reflecting less risk in 2013, somewhat offset by a slight increase in risk and uncertainty for the next two weeks or so.

(click to enlarge)

Source: CBOE Futures Exchange (CFE).

Disclosure: None.

Source: Unusual Twist In VIX Futures Term Structure Of Late