VIX futures

Definition

VIX futures are cash-settled contracts on the FORWARD level of the VIX index — the 30-day implied volatility of S&P 500 options computed by Cboe’s variance-strip methodology. Two facts define the instrument: the VIX itself is not tradeable (the futures price EXPECTED future VIX, not today’s print), and the futures curve sits in persistent contango in calm regimes — making short volatility a carry harvest and long volatility a bleed, until the regime breaks.

How it works / structure

• Specs: $1,000 per VIX point, cash-settled to a special opening quotation (SOQ) of the VIX on Wednesday expirations, monthly (plus weekly) cycles.
• Curve behavior: in calm regimes, futures > spot VIX (contango — rolling a long position pays the roll-down, historically severe in annualized terms — strategy-futures-carry in reverse); in stress, the curve inverts (backwardation) as front months spike hardest — the curve’s state is itself a regime gauge (regime-volatility).
• Convergence: each contract converges to spot VIX at settlement — the roll-down/roll-up path between entry and expiry, not the spot’s direction alone, determines P&L.
• Products built on it: VIX ETPs (ETNs and ETFs — instrument-etn, instrument-leveraged-inverse-etf) hold rolling futures baskets; the February 2018 episode — spot VIX more than doubling in a day, terminating a major short-vol ETP — is the permanent exhibit of the short side’s tail.

When it applies

Volatility-regime expression without options books (long vol into fragile calm, with the bleed acknowledged; the curve’s shape as signal); portfolio crash-hedging with the documented cost (long VIX futures as standing insurance have historically bled — the cost must be in the thesis); relative trades (futures vs realized, front vs back — indicator-realized-vs-implied-vol machinery).

Risk profile & failure modes

• Short-vol tail: the carry is real and the 2018-shape reversal is real; short VIX positions carry the KB’s clearest example of picking up steady premium in front of an occasional collapse — sizing by scenario, never by recent P&L (risk-scenario-analysis).
• Long-vol bleed: contango roll-down has historically consumed long positions held as standing hedges; timing or regime-gating is structural to any long-vol thesis.
• Spot-futures gap: “VIX spiked, my futures barely moved” — the futures priced the spike’s transience; the instrument trades expectations, not the print.
• ETP wrapper risk: acceleration/termination mechanics in the wrapped products add a layer the futures do not have.

Evidence & limits

Methodology and specs are Cboe-documented. The volatility risk premium the curve expresses is the documented VRP (indicator-realized-vs-implied-vol citations: Carr-Wu, Bakshi-Kapadia); the contango-bleed and stress-inversion patterns are visible across the product’s full history. Timing either side profitably is a replay question; the structural asymmetry (small steady carry vs rare violent reversal) is evidence-forced.

Falsifiable-thesis examples

Illustrations only, not signals:

• “The VIX curve’s front-month contango will persist through quarter-end (no inversion day)” — falsified by any backwardation close.
• “Spot VIX will trade above the current front-future’s price before its expiry (long-vol thesis)” — falsified at settlement.

Cross-references

• What it prices: opt-implied-volatility; the premium it carries: indicator-realized-vs-implied-vol
• Regime gauge: regime-volatility (curve state)
• Carry framework: strategy-futures-carry (inverted sign)
• Wrapper hazards: instrument-etn, instrument-leveraged-inverse-etf