As of today (and for the fourth time this year), investors are willing to pay a premium for spot VIX versus three-month futures on the VIX.
With the recent spike in the spot VIX, it has thrown the curve into backwardation– a condition signalling that the VIX is set to fall from extreme levels and one that has occurred five times in both 2014 and 2015, four times in 2013, and just once in 2012. Prior to that, investor appetite for near-term protection exceeded that for longer-term VIX futures on three occasions each in 2010 and 2011. Mild backwardation conditions have typically coincided with buyable pullbacks while more pronounced spikes were indicative of meaningful weakness in the S&P500.
