Strategy · Volatility

VIX FUTURES TERM-STRUCTURE TRADE

NeutralUndefined riskAdvanced

Overview

Trade the VIX futures curve: short front-month and long back-month in steep contango to harvest roll yield, or reverse the structure when the curve flattens or inverts.

Setup

1.Pull the full VIX futures curve daily.
2.Compute the front-to-back roll yield as a percent.
3.Short the front and long the back when contango exceeds 5%.
4.Reverse positioning when the curve inverts (front > back).
5.Cap notional at 5% of capital — VIX gaps can be brutal.
6.Use mechanical stops at 2x average daily range.

Max profit

Roll yield × position × time held; consistent in calm markets.

Max loss

VIX spikes can produce 50-100% losses on the short leg in days.

Breakeven

Roll yield captured > realized vol losses.

When to use

In persistently calm markets with stable contango.

When to avoid

Pre-event windows, recession signals, or after extended low-vol regimes.