I like long M1/M2 spread at -1 or -2 during large drawdown/panics, and get out at 1.0 or 1.5 when fear subsides. Very negative skew but fun with only a few contracts. In this year's drawdowns, I feel like the spread is reluctant to go into negative. Like today, M1/M2 spread is only -0.1ish around close, when SPX is down a lot for the day. It is like traders are expecting volatility to persist more than in the past, so M2 follows M1 more closely. Before when M1/M2 goes deep negative (I think Mar23, 2020 is around -14) the market is about to turn. It is like a speed brake or spoiler for the airplanes. Now the market has less of this effect, and may be more likely to go into a slow grinding down pattern?
My colleague, John Thorpe, follows the VIX the most in our office and I asked him to share his insight/ opinion: Perhaps, and only a guess, there have been a constant drumbeat of changes in the ability of portfolio managers to hedge their risk. You may be right about the markets viewpoint as reflected in month 1vs Month2 spreads that this volatility will be persistent. Persistent volatility is what we hear on CNBC and Bloomberg almost daily, Another month, another massive change in Volatility and the VIX. As you probably remember 2 new VIX ETF's (UVIX, SVIX) on 3/30/22. Just 2 days later, 4/1/22, VIXMO was depublished (and officially stopped calculating 4/4/22) This VIX was VIX Monthly Only (a slightly different calculation details are unimportant). What is important that it is yet again another depublish. That is now VXHYG, VXO (S&P100 VIX), SRVIX, VIXMO in addition to 2 new VIX ETF's 2 days before on 3/30/22 But perhaps it is similar to the depublishing of VXFXI (which also was depublished 2/11 with VXSLV and SRVIX) which was terrible for the FXI (China Large Cap ETF). The FXI fell -30% over the next month. Perhaps doing research into these VIX ETF’s (volume, price analysis would lead us to a much better understanding of the phenomenon you are highlighting. In short, these ETF's play counterparty to each other, and the indexes/futures/derivatives all arbitrage around it. A good way of putting it is literally the ETF-tail wagging the index-dog. You can find more info at their website https://www.volatilityshares.com/ These are the first 2 products from this new company after filing for SVIX approval in Dec 2019 (A reminder that SEC chair Gensler told us in October these would be approved)