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VIX Term Structure Carry

Updated dailyData needs: lowlong onlyshort onlylong short

2017

Eraker, B., & Wu, Y. (2017). "Explaining the Negative Returns to Volatility Claims: An Equilibrium Approach." Journal of Financial Economics, 125(1), 72-98.

Read the paper →

In plain terms

Daily roll-yield between front-month and second-month VIX futures. The bigger the contango, the better the short-vol carry trade.

How it works

log(VX2/VX1) front-month roll-down carry. Steep contango pays the short-vol carry; backwardation pays long-vol.

Live results

0 times picked on its own · 9 times inside a blend (6 beat the stock) · updated 2026-06-06

This strategy is a frequent ingredient in blends that combine a few strategies on one stock. It has contributed to 9 such blended picks (6 of which beat simply holding the stock). Picking it on its own is only one of the ways it shows up.

How its picks scored vs. buy & hold

Each pick is graded on a recent year it was never tuned on, against simply owning the same stock

Where its edge concentrates

Share of picks in each company-size group that beat buy & hold

How often it trades

Active vs. patient. Bars on the left mean it waits for rare setups; bars on the right mean it trades often

Return vs. buy & hold

How much each pick beat or trailed simply owning the stock over the test year (extreme microcap moves trimmed)

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Data dependencies

Vix term structure
A data feed this strategy reads, refreshed on its normal schedule.
Daily prices
Adjusted-close OHLCV for every US-listed ticker; primary price feed.

Expected edge

Reported return: ~5-12%/yr short-vol carry
Reported Sharpe: ~0.8
Tested over: T+1 to T+21d

Eraker-Wu 2017 JFE: ~5-15%/yr on short-VXX, ~3-7%/yr on SPY-timed.

Example tickers where this is likely to fire

SPY QQQ VXX UVXY

Illustrative only, the signal fires based on the live data, not a fixed list.

Related families

VIX Term StructureEconomy & Policy

Front-month VIX cheap vs 3-month (contango) means calm — SPY drifts up. When it inverts (backwardation), panic mode.

Vvix Regime Long EquityEconomy & Policy

When the vol-of-vol indicator (VVIX) spikes, the market is paying up for tail-risk insurance. Stocks usually rebound.

VIX Spike RecoveryEconomy & Policy

After a panic spike, when VIX starts dropping fast from 30+, stocks usually grind back over the next month.

Explore VIX Term Structure Carry on alphactor.ai

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