Is The $VIX Term Structure Rolling Over?

By Lawrence G. McMillan

Is this current market decline the harbinger of a new bearish market phase, or just a pause in the general bull market that was launched in March, 2009, with a couple of healthy bumps along the way?  One answer to that question can be observed in the behavior of the $VIX futures.  The stock market’s decline in the past two weeks has caused the $VIX derivatives to lose some of the bullishness that they have been displaying since last November.   Not only have the futures lost premium, but the term structure has begun to flatten as well.  At this point, the bullish construct that has existed in these futures persists, but can it continue?

These are the topics that will be discussed both in this feature article and in the article on page 12 (Volatility Derivatives Update).  In this article, we are going to primarily look at two things: 1) the trading system that we recently developed, using VXX and XIV ETN’s, and 2) whether or not the XVIX ETN may be of help as well...

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