Some Further Comments on The $VIX Futures Term Structure (Preview)

By Lawrence G. McMillan

Last week, we wrote about the term structure of the $VIX futures, and how one should heed it if it begins to  invert.  In that regard, we showed a chart of the difference in premium of the two front month $VIX futures going back a couple of years.  This week, we dusted off some previous research that showed a sometimes more reliable indicator of pending bearishness for stocks is to be wary of an inversion between the third month $VIX future (VX3) and the front month $VIX future (VX1).  The accompanying chart shows this spread going all the way back to the inception of $VIX futures trading in 2004.  

While the $SPX chart is not overlaid here, it can be stated with certainty that when VX3 – VX1 turns negative, it is time to be negative on stocks until this spread returns to a positive status...

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