When VIX is relatively high the VIX term structure moves into what we commonly refer to as backwardation. The way this may be defined varies among market participants, but most focus on the shorter end of the VIX curve. That is what I’ve been doing lately as well. It turns out, regardless of how you define VIX backwardation 2016 has experienced more instances of it than not for the first ten days of 2016. The tables below rank the consecutive day streaks for VIX backwardation by using three different ways of defining the relationship between spot VIX and VIX futures or even between VIX futures contracts.
The simplest definition of backwardation might be when spot VIX closes higher than the first month future. With the exception of the first two trading days in 2016 spot VIX has closed at a premium to the first month (January 2016 VIX) each day this year. As of Friday the current streak is at eight days, which places this run in a tie for 12th place.
Many volatility derivative traders like to focus on the relationship between the first month and second month. That is due to this relationship having an impact on the VIX oriented ETPs (VXX, SVXY, UVXY, etc). Currently that is the January 2016 and February 2016 VIX futures contracts and January has closed higher than February for all ten days in 2016 which puts this ten day run just inside the top 10 of backwardation streaks.
Finally, a more rigorous definition of backwardation would involve spot VIX closing at a premium to the first month and the second month closing below the first month. This has occurred each day since January 6th for a streak of eight consecutive days which is tied for 7th place among backwardation streaks.
I put up a ten minute video expanding on VIX backwardation and discussing these various streaks a little more. You can view that at the link below and keep an eye on this blog site as we track the current streaks for each of these methods of defining VIX backwardation.