The VIX Roll Down – Time To Sell

Every conversation about the VIX these days is about how it is time to pay because it is so low, it cannot get any lower.

The highest we saw in the VIX was at 89.53 back in Dec 2008 and the 10 year average has been 20.34.

vix historical 10 y

We are at 10.73 now which is pretty near its lowest of 9.39 back in Dec 2006.

But if you had thought it was low enough just last month and bought the Jun 2014 contract at 15.20, you would be sitting on a rough 20% loss today.

The roll down is getting steeper for the VIX because the long end is supported as we always expect volatility to happen in the future.

Take a look at the VIX in various points in time.


I can imagine the anguish if one had bought the VIX futures 6 months ago thinking it was a decent trade. The 39% loss is more than the 7.8% gain in the S&P 500.

The VIX curve has steepened !

The range between spot and the last contract has always been around 5 ticks but the current range is about 6.5 (10.74 – 17.3). That is a huge step up.

Could we think about anything else other than paying ?

How about selling ?

Selling December at 16.5, for example, and buying an earlier contract like Aug at 14.2 ? Or even selling the S&P 500 as a hedge ?

There are several VIX ETNs out there but few betting against the VIX and I found one that does not look too interesting given that it has underperformed the underlying index that it is supposed to inversely mirror, only delivering a return of 64.67% against the S&P 500 Short Term VIX futures Index which has lost  97.6% over 46 months.

Situations arise to challenge our belief systems and the VIX has become a sore discussion point for some and fallen out of the radar for the rest of a badly scarred field.

It is akin to looking at a puzzle from an opposite angle, I think, that will lead us to beating the game.