Just to summarize: The spot/forward relationship between VIX and VIX futures has two noteworthy consequences: (a) The price of a VIX futures contract can be lower, equal to or higher than VIX, depending on whether the market expects volatility to be lower, equal to or higher in the 30-day forward period covered by the VIX futures contract than in the 30-day spot period covered by VIX (b) There is no cost-of-carry relationship between the price of VIX futures and VIX. This is simply because there is no "carry" arbitrage between VIX futures and VIX as there is between a stock index futures and the underlying index. VIX is a volatility forecast, not an asset. Hence you cannot create a position equivalent to one in VIX futures by buying VIX and holding the position to the futures expiration date while financing the transaction. AND from the link suggested to me as knowledge: Investors considering these ETFs and ETNs should realize that they are not great proxies for the performance of the spot VIX. In fact, studying recent periods of volatility in the S&P 500 SPDR (ARCA:SPY) and the changes in the spot VIX, the one-month ETN proxies captured about one-quarter to one-half of the daily VIX moves, while the mid-term products did even worse. The TVIX, with its two-times leverage, did better (matching about half to three-quarters of the performance), but consistently provided less than fully two-times the performance of the regular one-month instrument. Moreover, because of the negative roll and volatility lag in that ETN, holding on too long after the periods of volatility started to significantly erode returns. The Bottom Line If investors really want to place bets on equity market volatility or use them as hedges, the VIX-related ETF and ETN products are acceptable but highly-flawed instruments. They certainly have a strong convenience aspect to them, as they trade like any other stock.
You cannot trade the spot VIX in order to do the strategy suggested by the OP to trade the VIX and SP500 as inverse products. VIX futures and VIX options which track the futures do not move with VIX as the underlying in a direct relationship like ES to SPX.
@El OchoCinco , well that clears it then That's why I pointed out to OP he should read up on how VIX is computed. The very generalistic idea that the VIX-S&P500 relation is 100% is completely false anyway. They could move unrelated as well. But if you want to trade VIX, then there are ways to trade approximations... either futures or ETF/ETN etc. So to just say you can't trade VIX because it's an index is a bit short sighted. There are holes in every strategy...
To make a long story short - you are better off simply shorting the ES or YM to profit from down turns. The VX contract is not very liquid - with its $50 tick and slippage you will eat a few hundred round-trip.
Also, as someone else very astutely pointed out, if you are trading two products inversely related then you are basically doubling down on the same position. This is not a spread trade relationship you are simply long market/short vol in both if you go long ES/Short VX futures. 2x the risk. A pure direction bet on vol through VX is the same is a directional swing trade on the indexes in many ways so be careful.
I have been trading this spread for some time and I think it offers some great opportunities. I am either long VIX futures and long ES futures or vice versa. The ratio can change, but at lower volatilities I generally trade it 1 x 1. I find the liquidity in the Vix futures contract to be quite good. Note that there is a fair amount of risk in this play. I have seen the Vix future rise as the ES goes up as well, so you could lose on both sides. I tend to be long both going into a very anticipated "event" and the short both after the "event", really another way to sell volatility that is hedged a bit. I trade it more as an art than science, so there are no set numbers I do it at, more just a feel of when premium is a bit high or low. Watch it for awhile and you will start to get a feel of how it trades. Good luck.
I dont think there is any real rhyme or reason to be long ES and VX in a 1x1 ratio as there is no edge or pattern/model. It may make better sense to trade VX and partially hedge with some ES contracts in some ratio you research with more VX than ES. If you are long ES and long VIX then they can consistently offset each other.
That's the point of the spread. Most of the time they offset each other, but opportunity arises when they don't. It allows you to sell/buy premium in different way then trading the options. Also I tend to have more ES then VIX as the Vix increases, not vice versa as you suggest.
It's never 100% related. Ratio's have major faults too. Think about this... what's the maximum VIX level possible? And minimum? And why does VIX move in a certain direction? VIX is risk related.... ES is related to underlying fundamentals. For instance, if a risk event has happened and the market dropped, you might see relief in the market. Because maybe the down-move wasn't nearly as much as expected, causing the VIX to drop. After the London bombings European markets were slightly higher after a big sell-off... and the index IV's were significantly lower than before the event.