codypd

VIX futures contango and backwardation - VIX/VXV ratio chart

If you trade VIX futures (and if you ever bought/sold UVXY you do) then contango and backwardation periods are important to monitor.

Several analysts over the years have suggested a .90 ratio of the VIX to VXV for detecting contango (under .90) and backwardation (over .90). That ratio chart is presented here with the UVXY/VIX in the background. Why UVXY/VIX? Because UVXY loses value relative to the VIX consistently due to contango. Pull up a 5 year chart of UVXY to see why contango makes it the worst hold there is.

On the whole the .90 rule works - you can see where the UVXY is rising in value relative to the VIX (backwardation) when above .90. This all makes sense - think of VXV as "the 93 day version of the VIX" (http://vixandmore.blogspot.com/2012/07/c...) and realize that backwardation happens when the distant future seems more certain than the immediate future. So when the VXV (as a denominator) shrinks relative to the VIX (the numerator) we have traders much less certain about the next 30 days than the next 90. Such periods are when UVXY builds value. The UVXY/VIX chart shows such periods to be brief.

EDIT: Just noticed that spikes below 0.80 also result in backwardation of UVXY . Now to figure out why.
EN English
EN English (UK)
EN English (IN)
DE Deutsch
FR Français
ES Español
IT Italiano
PL Polski
SV Svenska
TR Türkçe
RU Русский
PT Português
ID Bahasa Indonesia
MS Bahasa Melayu
TH ภาษาไทย
VI Tiếng Việt
JA 日本語
KO 한국어
ZH 简体中文
ZH 繁體中文
AR العربية
HE עברית
Home Stock Screener Forex Screener Crypto Screener Economic Calendar How It Works Chart Features House Rules Moderators Website & Broker Solutions Widgets Stock Charting Library Feature Request Blog & News FAQ Help & Wiki Twitter
Profile Profile Settings Account and Billing My Support Tickets Contact Support Ideas Published Followers Following Private Messages Chat Sign Out