Volatility: U.S. vs. "The World"

By Lawrence G. McMillan

These days, there are more and more volatility indices and futures than ever.  One can observe the same sorts of things about them that we do with $VIX futures – in particular, the futures premium and the term structure.  We thought it would be an interesting exercise to see how these other markets’ futures constructs compare to that of $VIX.  The $VIX construct, for a long time (see chart, page 12) has been that of large futures premiums and a steep upward slope to the term structure.  Historically, that sort of construct has been associated with bullish markets, although it has persisted throughout the current market decline as well.  How do these other markets line up in comparison to the $VIX futures construct?

Background

Volatility Futures
In these articles, we like to lay out the definitions, so that readers who are not familiar with the terms can understand the article without having to refer to back issues.

The premium on a $VIX futures contract is merely the futures price minus the value of $VIX.  Premium is a positive number if the futures are trading at a higher price than $VIX, but premium can also be a negative number – particularly in bearish markets...

Read the entire Volatility: U.S. vs. "The World" article (published 5/31/12) by subscribing toThe Option Strategist Newsletter.