What is the VIX term structure?

The VIX term structure describes the shape of implied volatility expectations across different time horizons, from short-term (9-day VIX, 1-month VIX) through medium-term (3-month VIX3M) to longer-term (6-month VIX6M). It is analogous to a yield curve for volatility and provides information about whether markets expect more or less turbulence in the near future compared to the medium term.

In normal, calm markets, the VIX term structure slopes upward (contango). This means longer-dated implied volatility is higher than shorter-dated, which makes intuitive sense: more time means more uncertainty. Just as longer-duration bonds typically yield more than shorter-duration ones, longer-dated options command a higher volatility premium. This structure is the norm roughly 80% of the time and reflects steady market conditions without imminent catalysts.

When the term structure inverts (backwardation), with near-term VIX exceeding longer-term measures, it signals that markets are pricing acute, near-term stress. This occurs during selloffs, geopolitical crises, or panicked de-leveraging. The inversion reflects the market's belief that current turbulence is a temporary spike that will eventually normalize, but the near-term risk is elevated. Persistent backwardation, lasting weeks rather than days, suggests deeper structural stress and often accompanies bear markets.

The VIX term structure has direct trading implications. VIX futures typically trade in contango, meaning front-month contracts are cheaper than further-dated ones. This creates a positive "roll yield" for strategies that systematically sell volatility, which has made short-VIX strategies popular. However, when the term structure snaps into backwardation, these strategies suffer devastating losses as near-term volatility spikes. The February 2018 "Volmageddon" event, in which the XIV inverse VIX product collapsed, was a dramatic illustration of this risk. Understanding the term structure helps investors assess both the current stress level and the expected persistence of any volatility regime.