This is the best analogy on this thread. It's the implied distribution of spot over the horizontal strip (duration). The smile is an input, but the greatest weight is given to the atm straddle vol. No comment on the cheap constituents, lol.
dmo, imo (ha) that is on the surface a common sense plan; but in reality it does not work enough of times to be an edge. sometimes futures will converge to spot. the idea that futures predict the curvature related to spot would be real nice if it worked that way all the time. proximity to expiration and the size of the spread are tools once mastered to help with defining your time horizon curvature bet. very few people have figured out how to play these for profit too.
I agree that if you wait for this to happen you'll miss most bottoms. But on those rare occasions when we approach major, major support (as we have on the ES at around the 1250 level), the relationship between the VIX cash and VIX futures is worth looking at. I've gone back and taken a pretty close look at this, and when the VIX cash spikes way up into the 30's and especially 40's, it's a pretty reliable sign of a bottom. When this happens the futures do not follow the cash up there, and so at major ES bottoms, the VIX cash trades at a big premium to the VIX futures. In this case the SPX traders represent the raw emotion, and the futures traders are the ones that keep their heads. I have been trying to find a chart of the premium/discount of the VIX front-month futures vs. VIX cash, without success. If you know of any source for such a thing, I'd be grateful.
http://futuresource.quote.com/charts/charts.jsp?s=VX N8-CF&o=VIX&a=D&z=610x300&d=medium&b=bar&st= there is money to be made by correctly predicting july future @ 24.70 and aug @ 24.39 will move either away or to each other. that is one way to play these. if you are simply trying to predict es based on vix and vix futures; i have not played that as much as the different month futures movements. the above link will chart the futures and spot vix. good luck.
Beautiful. Thank you very much! I pay some $200 a month to DTN IQFEED for data and they don't provide VIX futures!
np, any time dmo...but take a look at ib if you have access. they have all the data too. i run the switches on their spread trader platform.
A few weeks ago in fact I opened an IB account - one of the reasons was to get access to "obscure" things like vix futures. I'm still getting comfortable with their platform - not exactly warm and fuzzy, but very powerful. I've found their charting to be pretty hostile - but maybe I should take another stab at charting VIX futures over cash.
This is the same pattern as early this year. In the beginning of January, SPX dropped almost daily but VIX stayed flat or declined. SPX continue to drop and VIX eventually caught up, spiking into the 30s suddenly. If the current SPX decline continues for several more sessions, we'll see the same deal again.