Every so often, especially when markets are extremely volatile, the financial press remarks on the VIX index, which is considered one of the best 'fear and greed' indicators in the US market. The steady growth in volume, the expansion of the trader base, and the generation of historical price data has also led to increased interest in risk and volatility in academic circles, where published work on the topic has contributed to a better understanding of the asset class, which in a virtuous cycle has further contributed to a broadening interest in volatility products such as VIX futures.
With respect to self-directed, individual retirement accounts (IRAs”), you should understand that trading futures or options on futures is speculative in nature and subject to risks that may be greater than those of other investment vehicles in which retirement funds may be invested.
If the same observation is applied on the price moves of a sector-specific index, say the NASDAQ Bank Index (BANK) which comprises of more than 300 banking and financial services stocks, one can assess the realized volatility of the overall banking sector.
The daily roll is defined as the difference between the front VIX futures price and the VIX, divided by the number of business days until the VIX futures contract settles, and measures potential profits assuming that the basis declines linearly until settlement.
Much like physics, where the effects of Newton's gravity and Einstein's relativity are generally well understood while the mathematical equations behind the theory are less broadly understood, today's volatility traders and most investors have accepted that the VIX calculation likely is the best representation of an asset's implied volatility, especially as it is readily available from publicly available quote and price data, leading to the application of the VIX methodology beyond the S&P 500 Index to other assets and securities options' prices to calculate the implied volatility of a diverse group of assets.
Tests of the expectations hypothesis reveal that the slope of the VIX futures term structure predicts the direction but not the magnitude of the evolution of the short-end of the curve, but predicts neither the direction nor the magnitude of short-term changes in the long-end of the curve.
Since the Chicago Board Options Exchange (CBOE) introduced futures and, subsequently, options on its Volatility Index, or VIX, traders ;p vix futures have asked why the contracts don't necessarily track the underlying in the same way other equity futures track their indexes.