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VIX - Future Value, Implied Combo, Skew Comps to Past

VIX spot is quoting $16.41, unched at time of writing with IV30™ down 6.8%. The LIVEVOL™ Pro Summary is below.

The 52 wk range on VIX is [15.23, 48.20], so the 16.41 level is obviously near the low. But, the futures are pointing consistently and substantially higher, AKA "Contango."

Let's look to the Options Tab with just the ATM for all months in VIX and back out the future values (we don't need no stinkin' futures).

Using put-call parity (assuming essentially 0 interest rates), here are the future implied values of VIX as well as a nice little chart.

So, in English, although the VIX is nearing it's year low as the year ends, out to May, the future fair value is in the 25 range. Yikes... Let's dig a little deeper and look at some skew charts. Below you can see:

1. VIX skew today
2. VIX skew a year ago
3. VIX skew two years ago

Here's what I see.
1. The spot values were quite different:
2010: 16.4
2009: 20.49
2008: 44.56

2. Check out the difference in the skew shape between today and two years ago. 2008 showed essentially a flat skew. Recall that this right after the VIX had been at 80. There is more relative upside risk compared to the ATM in the VIX reflected in the options now, than there was then.

3. Look at the upside skew spread between the monthly vols between 2010, 2009 and 2008. 2010 shows the the greatest relative vol difference month-to-month. That is, each monthly IV is lower than the next by a fairly large amount compared to the other time frames (in OTM calls).

One way to look at this could be simply: "Sell that upside skew in VIX a few weeks from expo each month as it elevates."

Potential Trades to Analyze
1. One trading strategy could be to buy the depressed May OTM calls and sell the front month, one at time for each of the next 5 months. This trade leaves a covered upside and potentially ends in May with an OTM call for a credit (paid for by the other months). This strategy implicitly believes that the VIX futures curve is too steep.

2. Another take: The downside puts are way too cheap, buy them. We can see that the 15 and 16 strike puts in VIX are in the $0.05 to $0.30 range depending on month and strike. It's a small bet to own those. If VIX goes back to 10 (ish), those are a huge winner.

3. Riskier: Sell the upside naked and bet on convergence downward of VIX spot to future value. The Feb 18 calls (as one example) are priced at ~$4.10 fair value. The Feb 24 calls are priced at ~ $1.75 fair value.

4. Even riskier: If you want to bet the VIX goes to a specific price on a specific date (or expo), sell that straddle. For example, if you think VIX is going to sit on 20 (ish) by Jan expo, sell that straddle naked @ $3.60 and be safe in ($16.40, 23.60).

5. Contrarian: If you think we're headed for a collapse, buy a VIX call spread.

This is trade analysis, not a recommendation.

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