Portfolio Insurance for (Almost) Free

From VIX and More
December 31, 2013 - 1:44am

A lot of strange things happened in the financial markets late on Friday afternoon and a good deal of the craziness was in the VIX futures market, with impacts felt in the likes of VXX, which jumped 11.6% in less than an hour (the last 40 minutes of the regular session and the first 14 minutes of after-hours trading.) The corresponding spike in the VIX futures prices pushed the front two months of the VIX futures term structure into backwardation (a downward sloping term structure curve in which front month futures contract is priced higher than the second month futures contract) for only the second day since November 2011, with the lone exception dating from May 18, 2012, when the front two month contracts were in backwardation by a mere 0.05 points. The chart below shows how the VIX futures term structure changed over a ten-day period from December 18 to December 28. While all eight ...


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