Shorted S & P 500 (BBUS) - VRatio (VIX3M/VIX) @ 1.15, VIX = 18.
Will close short when VRatio <1>
VIX backwardation now in top 5%. This is a positive signal over a 3 month time horizon.
Time to cover shorts.....
Study by Athanasios Fassas and Nikolas Hourvouliades
Key findings of study support the thesis that the term structure of VIX futures can be employed as a contrarian market timing indicator for the equity market.
Typically, VIX futures markets are in contango, which means the VIX futures price increases over time. The study finds there in no meaningful market timing signal when the VIX futures are in contango.
When the VIX futures are in backwardation (i.e. the VIX futures price decreases over time), the subsequent future return of the S & P 500 is positive. Note: All cases of backwardation result in S & P 500 positive weekly and quarterly returns.
Paper can be found here.
VIX Futures slope:
17/08/2022- 3 month futures: 0.07 (contango)
26/08/2022 - 3 month futures: 0.02 (contango)
Note: Statistically significant backwardation: