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Quick Look Into The Dec VIX & The Current State Of The Term Structure

|Includes: SPDR S&P 500 Trust ETF (SPY), SVXY, TVIX, UVXY, VXX, VXZ, ZIV
Summary

Dec VIX is currently M7 (on the very far end of the curve).

It typically gets discounted to Nov/Jan due to the 'holiday' effect.

Current & historical Dec VIX spreads to spot and Jan.

Overall state of the VIX term structure.

In my previous post, where I've posted the current VIX term structure & the theoretical VIX term at the roll (given that VIX spot stays constant) - it could be seen that the current term is relatively steep... ...in fact, if we compare the relative 'steepness' of the mid term (M4-M7) vs the absolute prices of the back month (December, in this instance) over the past week...it is in an uncharted territory (red dots - past 5d): The main point - the term is relatively flat & it's priced relatively low (historically speaking).Lets look at December contract exclusively...In terms of the price vs. DTE (days to expiration); it is priced on the very low end - similar to last year's Dec '17...

Although, the difference between current Dec absolute price vs. the historical of Dec '17 - last year it was @ the similar price (same DTE), as the VIX spot was in the low 10s...Right now; VIX spot is ~ 2.00p higher......This could be clearly seen, if we look at the premiums (Roll Yield) of the VIX Dec contracts vs. DTE... ...and while the absolute prices of the two contracts are equal; the VIX Dec17 had ~ 23% of additional RY premium over spot @ this DTE. In fact, if we would price current VIX Dec18 (16.1) according to the average RY - it would be by a ~1.00p (+6%) higher; at ~ 17.Finally, we can also look at the Dec/Jan VX spreads... ...and they appear very much in-line w/ previous historical spreads (other than for '17).

BOTTOM LINE:The curve remains relatively flat going from M3 (August) to M7 (December); while the front month spreads to spot VIX are very much 'in-line' w/ the average premo at their respective DTEs'.There are multiple scenarios for "how could it possibly steepen" in the future; but I'd assume that this would take place as a 'multiple-month' roll-down:1. '19 contracts will get the extra premo2. Front to mid-months will steepen by 0.2-0.33. VIX spot will remain @ low 12s (at least)As I've mentioned earlier, the best scenario for being short volatility via VIX futures & derivatives - is when the term structure is priced high on an absolute basis & vs. the VIX spot; and the steepener' starts at these high prices, as the VIX spot falls.Some kind of short-term, exogenous "non-event" shock would be beneficial to get the extra premo into the term & the following steepener at these higher prices...