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VIX Sub 20: The Short Volatility Trade Is Back

Damir Tokic profile picture
Damir Tokic


  • Historically, the short VIX trade has been appropriate with VIX under 20.
  • ProShares Short VIX ETF benefits from falling VIX.
  • S&P 500 at extreme valuation is the major risk to the short VIX trade.

The VIX CBOE Index is currently trading below 20, which is a very important level. As the chart below shows, the VIX trades above the level of 20 during the periods of US recessions, and the global financial crisis - and it tends to spike significantly during these volatile periods.

See below the cases of the above-20 VIX periods: 1) the US recession of 1991, 2) the emerging market financial crises in late 1990's, 3) the US recession of 2001, 4) the US recession of 2008, 5) the European financial crisis of 2012, and 6) the US recession of 2020.

As a trading strategy, the long volatility trade is appropriate when VIX is above 20, in expectation of the volatility spikes.


On the other hand, the chart above also shows that when VIX trades below 20, it tends to gradually decrease towards to support level of 10. These are usually the periods that start with the post-recession economic recovery, and last towards the end of the business cycle when recession probabilities significantly increase. During these periods, as a trading strategy, it is appropriate to short VIX in expectation of a continuous economic growth.

Currently, the VIX Index is below 20, which makes sense since we are just exiting the 2020 recession, and given the extraordinary fiscal and monetary policy support in the US and globally, the probability of a double dip recession is probably near 0%. Thus, in this situation it's reasonable to expect a gradual decline in VIX, which supports the short VIX trade.

The short VIX trade

The VIX futures curve is currently in a contango - the cash VIX level and the near month VIX futures are below the far month VIX futures, as the chart below shows, which supports the short VIX trade. For example, the cash VIX value is at 17.9, while

This article was written by

Damir Tokic profile picture
Global-macro research. Proprietary trader. Holding a valid Series 3 license as a Commodity Trading Adviser, member of National Futures Association. Professor of Finance. Editor-in-Chief Journal of Corporate Accounting and Finance.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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Comments (9)

Thank you for the article. Where do I go to find the VIX futures curve?
And as another caveat, When the last major VIX spike hit in 2008, It took 14 months to get back below 20, and 3 years before it got comfortable there. Now to be fair, we have a lot more forces now trying to hold the markets up, so no definite reason for history to repeat itself, but looking at each of those three years, April was actually a good time to start a long, rather than a short position, as it seems the VIX is historically repressed in April. Just a counter though to chew on.
While I am currently getting a bit crushed on my long VIX calls, In general, it seems that the times where it is 100% obvious to all the "experts" and agreed upon by everyone that nothing could possibly go wrong, like now, is usually the best setup for something going wrong. An economy on literal monetary life support with a market trying to actually touch the moon, doesn't seem sustainable IMO, but then again, I would have said the same two months ago, and all we have done is go up lol. I would love to catch the next big VIX spike, but for right now, getting back to break even on my current trade would do me fine...
Always good to share trade ideas. I myself don't trade the VIX or any of it's products due to etfs that have gone bankrupt. I have been reading so much lately about a market top in April or June. Seasonally this is a strong quarter for the stock market. Yields have been falling recently along with the USD. If it continues then shorting the VIX would be a great trade. Thanks for the trade idea!
Scoe profile picture
06 Apr. 2021
Clueless article which is easily refuted by basic quantification.
@Scoe agreed. It’s at times like these that I lament Seeking Alpha’s lack of basic quality control checks.
Damir Tokic profile picture
@Leviathan1 you have to call it as you see it, otherwise what’s the point, but thanks for reading
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