Normally, when the VIX begins to enter a new level, the Futures don’t ‘buy’ into the move. This causes the VIX to either be overly backward for periods of time, at levels the VIX would not be backward in, or alternatively, to have an extra steep contango when IV is clearly dropping. We saw something like that over the last few weeks, as anytime VIX made a run at 16 or so, the curve would flatten up or even enter backwardation.
Now that the market has held a 14 VIX for several weeks, it appears that the Futures are finally buying into the level. With the VIX trading 14.30 and about 3 weeks to expiration, the VX March future is trading at about .90 premium.
One might argue that is even a little high relative to normal conditions. It clearly points toward the short VIX Futures play being a less crowded trade than it was when the VIX was trading around 12.5-13 consistently. This means that one should expect the vol of vol to be higher and there is a good chance the VVIX should stay elevated for a while. I also think with SPX sitting still and VIX being firm that there is a real chance for a another sell off, or at a minimum a serious break out of volatilty. With non farms coming up next week, things might get worse.
Despite how ‘juicy’ straddles look they might not be the best play. A short time spread could make some sense though.