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The Relationship Between Short-Term And Mid-Term Volatility

Adam Smiga profile picture
Adam Smiga


  • Short and mid-term volatility mostly move in the same direction but with different dynamics.
  • Short-term volatility ETPs suffer from larger price erosion than mid-term ETPs.
  • The relationship between short and mid-term volatility is relatively predictable in normal market conditions.

In my first article I mentioned that it’s possible to use mid-term volatility to hedge positions in short-term volatility. It means that you can hedge your exposure to VXX, VIXY or UVXY with VXZ or VIXM.

Today I’d like to explore the relationship between short and mid-term volatility more in depth. To analyze the relationship I’ll statistically evaluate the historical data of index SPVIXSTR and SPVIXMTR. These two indexes serve as underlyings for the most short and mid-term volatility ETPs. I am using these two indexes because there are some issues with historical data of particular ETPs. However, VXX, VIXY, VXZ and VIXM are effective in tracking its underlying index so directly using the underlyings shouldn’t significantly affect the results.

Understanding the short-term and mid-term volatility indexes

To deeply understand the relationship between short and mid-term volatility it’s necessary to understand how these two indexes are composed.

In the factsheet of SPVIXSTR index is following definition: "The S&P 500 VIX Short-Term Futures Index utilizes prices of the next two near-term VIX futures contracts to replicate a position that rolls the nearest month VIX futures to the next month on a daily basis in equal fractional amounts. This results in a constant one-month rolling long position in first and second month VIX futures contracts."

The similar definition is available for SPVIXMTR: "The S&P 500 VIX Mid-Term Futures Index measures the return of a daily rolling long position in the fourth, fifth, sixth and seventh month VIX futures contracts. It is a member of the S&P 500 VIX Futures Index Series which offers investors directional exposure to volatility through publicly traded futures markets."

The key difference is that the SPVIXSTR index is composed of two near-term VIX futures contracts while the SPVIXMTR simulates the exposure to 4th, 5th, 6th and 7th VIX futures. It’s essential

This article was written by

Adam Smiga profile picture
I work as an analyst with focus on US small cap companies. Except of it I develop strategies which I use in my own trading. These are often based on inefficiencies in composition of some ETPs. I mostly use statistics when i conduct my analyses and options or stocks for my trading. My favourite asset class are products based on volatility.

Analyst’s Disclosure: I am/we are short UVXY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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