VIX Term Structure: Your Free Edge

The VIX measures expected 30-day volatility of the S&P 500, derived from options prices. But the VIX is not just one number -- it exists across multiple time horizons. VIX9D measures 9-day expected volatility. VIX (standard) measures 30-day. VIX3M measures 3-month. VIX6M measures 6-month. Together, these form the VIX term structure: a curve showing how much volatility the options market expects at different horizons. The shape of this curve tells you something that the VIX level alone cannot. Two days can both have a VIX of 18, but if one has VIX3M at 20 (upward sloping curve) and the other has VIX3M at 15 (inverted curve), they represent completely different market conditions. The level tells you the current expectation. The shape tells you whether the market expects things to get better or worse.

When short-term volatility (VIX) is lower than longer-term volatility (VIX3M), the term structure is in contango. This is the normal state -- it occurs roughly 70-80% of the time. It means the market expects current conditions to persist or slightly elevate over time. Contango reflects complacency or at least stability. Traders are not panicking about the near term. When short-term volatility exceeds longer-term volatility (VIX > VIX3M), the term structure is in backwardation. This is the fear state. The market is pricing in more risk right now than it expects three months from now. Backwardation occurs during selloffs, crises, and around major events where near-term uncertainty is elevated. The transition from contango to backwardation is itself a signal. It typically occurs as the market is entering a volatile regime. The transition back to contango signals that the acute fear is passing. Both transitions tend to happen before price fully reflects the regime change, giving term structure analysis a modest but documented leading quality.

The simplest way to use term structure is the VIX/VIX3M ratio. When this ratio is below 1.0, the curve is in contango (normal). When it exceeds 1.0, the curve is in backwardation (stressed). Historical analysis of this ratio shows several useful patterns: Ratio below 0.85: Deep contango. The market is extremely complacent. Historically, these conditions precede some of the sharpest volatility spikes. Not immediately -- complacency can persist for weeks or months -- but the risk of a regime shift is elevated. Ratio between 0.85 and 1.0: Normal contango. Standard market conditions. No particular signal. Ratio between 1.0 and 1.1: Mild backwardation. The market is nervous but not panicking. Often seen around scheduled events (FOMC, CPI) and during orderly selloffs. Ratio above 1.1: Significant backwardation. Genuine market stress. Historically associated with VIX spikes above 25 and multi-day volatile regimes. This is when daily ranges on ES can expand to 50-80 points or more. The documented accuracy of the VIX/VIX3M ratio for regime identification ranges from 65-75% depending on the specific threshold and lookback period used. It is not a crystal ball, but it is a meaningful input that costs nothing to check.

Term structure is one of the feature categories in the Curistat volatility model. Specifically, we incorporate the VIX/VIX3M ratio, the absolute levels of VIX9D and VIX3M, and the rate of change of the term structure slope. The rate of change is particularly informative. A term structure that is flattening (moving from contango toward backwardation) suggests deteriorating conditions even before the ratio crosses 1.0. Similarly, a steepening curve (moving deeper into contango after a stress period) signals improving conditions before it is obvious from price action alone. In our 42-feature model, term structure features contribute meaningfully to forecast accuracy, though they rank below direct volatility history (prior session standard deviations) in raw predictive power. Their value is highest during regime transitions -- precisely when getting the forecast right matters most for position sizing and strategy selection.

Every data point in the VIX term structure is freely available from CBOE, Yahoo Finance, and most trading platforms. You do not need a Bloomberg terminal. You do not need an options data subscription. You can check the VIX, VIX9D, VIX3M, and VIX6M levels in 30 seconds on any free financial website. Most retail futures traders do not check term structure. They might glance at the VIX level, but they do not compare it to VIX3M or track the ratio over time. This is a genuine informational edge hiding in plain sight. A simple daily practice: before the session, check the VIX/VIX3M ratio. If it is in deep contango (below 0.85), be aware that complacency is extreme and the risk of a volatility event is above baseline. If it is in backwardation (above 1.0), expect elevated ranges and adjust your sizing and stops accordingly. If the ratio is transitioning (crossing 1.0 in either direction), pay extra attention to regime shifts. This takes 30 seconds and costs nothing. Combined with the volatility rating (which incorporates term structure quantitatively), it gives you a framework for understanding what kind of day you are walking into. That understanding is more valuable than any indicator on your chart.