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Rahul asks:  “Are the VIX futures back to normal now?

 

In this sense I’m just taking “normal” to mean the average range of values over time, and so my answer is no we are not back to normal just yet.

That volatility event in early February was not the one off kind that disappears as fast as it came.  There was definitely some follow through of fear in that one and it can take a while for things to settle down.  It was a while ago but recall the European debt crisis in 2011.  That event elevated volatility for quite some time before normalizing.  The same pattern happened later in 2015 which also lingered into the first few months of 2016.  It can take several months for market participants to work though it.  It does seem we’re heading in the right direction though so with patience we may see more normal levels start to occur with more frequency.

So what is “normal?”  Here are the M2:M1 VIX futures values since the SVXY launched in early October 2011.  Remember this is the gap between the front month and second month futures.  Positive values are called contango and negative values are called backwardation:

 

 

As you can see we’re just starting to see a small recovery here, but since SVXY inception we’re still in the bottom 1/4 of values so not quite normal just yet.

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