Volatility Indices Advanced Market-traded expectations of future VIX Forward-looking

VIX Futures

The only futures curve that points at a long-run average instead of at today's price.

Quick answer: VIX futures are exchange-traded contracts on the future value of a volatility index, and because volatility mean-reverts they price toward its long-run average rather than toward today's spot — which is why the curve normally slopes upward in calm markets and inverts in stress.

In simple words

A VIX futures contract is a bet on what the VIX will be on a future date. What makes these futures strange is that they do not price toward today's VIX — they price toward where the VIX usually lives, its long-run average of roughly 17.5. So in a calm market, with spot VIX at 12.4, the futures curve slopes upward: the one-month future is around 13.7, the three-month around 15.4, all pulling toward that long-run home. In a stressed market, with spot VIX at 27, the curve slopes downward: futures sit below spot, around 24.5 for the first month and 21.4 for the third, because the market expects the panic to fade back toward the mean. This upward shape has a name — contango — and the downward shape is backwardation.

The reason this matters is not academic. A VIX future in contango is trading above spot, and as time passes it must fall toward spot as it approaches expiry — even if the VIX never moves at all. That decline is called roll cost, and for anyone holding long-volatility positions it is a tax paid every single day. It is the reason long-volatility products bleed value relentlessly, and it is the reason the short side of the same trade looked, for years, like effortless income — right up until it wasn't.

Not to be confused with: Spot VIX, and an ordinary futures curve. VIX futures do not converge to a tradable spot the way a commodity or index future does, because you cannot hold spot VIX — it is a calculation, not an asset. That breaks the cash-and-carry arbitrage that pins normal futures to spot. And the VIX futures curve is shaped by mean reversion toward a long-run average, not by the cost of carrying an asset, so reading it like a normal contango-from-storage-costs curve gets the mechanism wrong.

The VIX futures curve in calm and in stress

The curve points at the mean, not at spot

VIX futures term structure with spot at 12.4 (calm) and at 27 (stress), long-run mean 17.5.

In calm the curve rises from a low spot toward the long-run mean; in stress it falls from a high spot back toward the same mean. Both curves are aiming at roughly 17.5 — that shared target is the whole point. A futures curve that ignores today's spot and reaches for a long-run average is the signature of a mean-reverting underlying, and it is why the roll works the way it does in each regime.

Professional explanation

Why a volatility future prices toward the mean, not toward spot

Every futures curve is the market's best guess of where the underlying will be at each expiry. For most underlyings that guess is anchored to today's spot, because you can buy the asset now and carry it, and arbitrage forces the future to sit at spot plus carry. Volatility is different because it mean-reverts hard: a VIX of 12 does not tend to stay at 12, and a VIX of 30 does not tend to stay at 30 — both are pulled toward a long-run home around 17.5, at a decay rate of roughly 0.30 per month. So the fair value of a VIX future is not today's spot; it is the expected VIX at that expiry given mean reversion. When spot is below the mean, every future sits above spot and the curve slopes up. When spot is above the mean, every future sits below spot and the curve slopes down. The curve is a snapshot of mean reversion in progress, and it is why VIX futures behave unlike any equity or commodity future a trader has met before.

Contango, backwardation, and how to read the slope

The two shapes have names worth using precisely. Contango is the upward-sloping curve of a calm market: spot low, futures higher, each contract pointing up toward the mean. With spot at 12.4 and the mean at 17.5, the one-month future prices near 13.7, the two-month near 14.7 and the three-month near 15.4 — a steady climb. Backwardation is the inverted curve of a stressed market: spot high, futures lower, each contract pointing down toward the mean. With spot at 27, the one-month prices near 24.5, the two-month near 22.7 and the three-month near 21.4 — a steady descent. The slope is therefore a regime indicator: a steep contango is the market saying today is unusually calm and will normalise upward, and a deep backwardation is the market saying today is unusually stressed and will normalise downward. Neither shape is a forecast anyone is confident in; both are just mean reversion, priced.

The roll, and why long-volatility ETPs decay

Here is the mechanism that matters, and it needs stating without softening. A long VIX futures position held through contango loses value as each contract rolls down toward spot, even if spot never moves. Imagine buying the one-month future at 13.7 when spot is 12.4, and nothing happens for a month: as the contract approaches expiry it must converge toward spot, so it drifts from 13.7 down to 12.4, and you lose the 1.3 points — the roll cost — purely for holding it. To stay long volatility you sell the expiring contract and buy the next one, higher up the curve, and pay the roll again. Compounded across every roll, month after month, this is why long-volatility exchange-traded products decay relentlessly: they are structurally short the roll yield, paying a toll to maintain exposure to a spot that, most of the time, is not moving. A long-volatility ETP in a persistent contango is a melting ice cube, by design, and no amount of marketing changes the arithmetic of the roll.

The other side of the roll, and February 2018

If long-volatility products pay the roll, the inverse products collect it. An inverse or short-volatility ETP sells the VIX futures that the long products buy, harvesting the roll yield as the curve rolls down in contango — and because the VIX is in contango most of the time, this looked, for several years, like a machine that printed steady income. It was not. The roll yield was compensation for a risk, and the risk was that the curve would invert violently and the short position would face a VIX spike with no cushion. On 5 February 2018, that risk arrived. The VIX roughly doubled in a single session, the futures the short products were selling gapped upward, and the largest of the inverse products, the VelocityShares Daily Inverse VIX Short-Term ETN — XIV — lost about 96% of its value in that one day. Its terms allowed the issuer to accelerate redemption after a loss of that size, and the product was terminated shortly after. This is the single most instructive event in the history of retail volatility trading: not because it was a fraud, but because it was not. The product did exactly what it said. The steady income was always the premium for underwriting a tail that, when it came, took almost everything in an afternoon.

No spot to converge to, and no cash-and-carry anchor

One more structural fact separates VIX futures from every other futures curve, and it compounds everything above. A normal future is pinned to spot by cash-and-carry arbitrage: if the future strays too far from spot-plus-carry, you trade the future against a spot position and lock the difference. VIX futures have no such anchor, because there is no spot VIX to hold — the VIX is a calculation, not an asset, and you cannot buy it, store it, or deliver it. VIX futures settle against the value of the index at expiry, but you cannot arbitrage them against a spot holding along the way, so the curve is free to reflect expectations and risk premia without being dragged back to a carry relationship. That missing anchor is why the roll can persist as reliably as it does, and why the basis between futures and spot is a genuine risk premium rather than a mispricing waiting to be arbitraged away. In India, VIX futures on India VIX exist on the NSE, but they are thinly traded, so the curve that theory describes is, in practice, sparsely populated here.

The roll: what happens to a held contract even if spot never moves

The path of a single VIX future as it ages down a contango curve toward spot.

Follow one contract, not the curve. In contango a future bought above spot slides down toward spot as it approaches expiry, losing value with the passage of time alone — the roll cost. Compounded across every roll, this is why long-volatility ETPs decay even in a flat VIX, and why the inverse trade looked like free income. The word the picture will not let you use is "free": the income was compensation for a risk that arrived, all at once, in February 2018.

Formula

VIX futures fair value under mean reversion

F(t) = θ + (V_0 − θ)·e^{−k·t}

The fair value of a VIX future maturing in t months is the expected VIX under mean reversion: today's spot pulled toward the long-run mean at rate k. When V_0 is below θ the curve slopes up (contango); when V_0 is above θ it slopes down (backwardation). This is a simplification — real VIX futures also carry a variance risk premium — but it captures why the curve reaches for the mean rather than for spot.

F(t)Fair value of the VIX future maturing t months from today, in index points.
θThe long-run mean of the VIX toward which futures price — taken as ≈ 17.5 in the examples on this site.
V_0Today's spot VIX level — 12.4 in the calm example, 27 in the stressed example.
kThe mean-reversion (decay) rate, ≈ 0.30 per month: the speed at which the VIX is pulled back toward θ.
tTime to the future's expiry, in months.
eThe base of the natural logarithm, ≈ 2.71828; e^{−k·t} is the fraction of today's gap to the mean that remains at expiry.

The roll cost of holding a long future through contango

Roll cost per period ≈ F(t) − F(t−Δ) (negative in contango as the held contract ages toward spot)

As a held contract approaches expiry it converges toward spot. In contango — F above spot — that convergence is downward, so the holder loses the gap even if spot never moves. Compounded across rolls, this negative roll yield is the engine of long-volatility ETP decay and the income of short-volatility ETPs.

How to read the VIX futures curve

Identify the shape first. If futures sit above spot and rise with maturity, the curve is in contango — the calm-market default. If they sit below spot and fall with maturity, it is in backwardation — the stress signature.
Read the slope as mean reversion, not as a confident forecast. Both a rising and a falling curve are pointing at the same long-run mean of roughly 17.5, from opposite sides.
For a long-volatility position, measure the roll cost: the gap between the contract you hold and the one below it on the curve is what you pay, per roll, even if spot never moves.
For a short-volatility position, recognise that the roll you collect in contango is a risk premium, not free income — it compensates for a curve inversion that can arrive in a single session.
Do not treat the curve like a normal futures curve. There is no spot VIX to hold, so no cash-and-carry arbitrage pins it, and the basis is a genuine risk premium rather than a mispricing.
In India, check liquidity before relying on the curve at all: India VIX futures exist on the NSE but trade thinly, so the term structure here is sparse and can be unreliable.

Practical example

NIFTY worked example

Take the calm regime: spot VIX at 12.4, long-run mean 17.5, decay rate 0.30 per month. The fair value of the one-month future is F(1) = 17.5 + (12.4 − 17.5)·e^(−0.30×1) = 17.5 + (−5.1)(0.741) = 17.5 − 3.78 ≈ 13.72. The two-month is F(2) = 17.5 + (−5.1)(0.549) ≈ 14.70, and the three-month F(3) = 17.5 + (−5.1)(0.407) ≈ 15.43. The curve climbs: 12.4 spot, then 13.72, 14.70, 15.43 — textbook contango, every contract reaching up toward 17.5. Now interpret it as a cost. If you buy the one-month at 13.72 and the VIX simply sits at 12.4 for the month, the contract must converge toward 12.4 by expiry, so you lose about 1.3 points to the roll for holding a view that turned out to be exactly right about spot being unchanged. That is the uncomfortable heart of long volatility: in a calm, contangoed market you can be correct that nothing will happen and still pay, every month, for the privilege of being positioned in case it does.

BANKNIFTY worked example

The stress regime shows the mirror image, and India makes it concrete-but-thin. Take spot at 27, mean 17.5, decay 0.30 per month. The one-month future is F(1) = 17.5 + (27 − 17.5)·e^(−0.30) = 17.5 + 9.5×0.741 ≈ 24.54, the two-month F(2) = 17.5 + 9.5×0.549 ≈ 22.71, and the three-month F(3) = 17.5 + 9.5×0.407 ≈ 21.36. The curve falls: 27 spot, then 24.54, 22.71, 21.36 — backwardation, every contract pointing down toward the mean as the market prices the panic fading. A short-volatility position now collects nothing from the roll and is fighting a spot far above the futures; a long position, for once, is rolling into cheaper contracts. The Indian wrinkle is liquidity: India VIX futures on the NSE would, in theory, trace exactly this curve around a BANKNIFTY- or NIFTY-driven stress event, but they trade so thinly that the term structure is sparse and the prices you would need to execute the trade may simply not be there. A correct read of the curve is worthless if the contracts at each maturity are untradeable.

Lot sizes used above (NIFTY 75, BANKNIFTY 30) are those in force at the time of writing; NSE revises them periodically. Figures exclude brokerage, STT, exchange charges, stamp duty and GST. Examples are teaching scenarios built on round numbers — they are not historical quotes, not backtests and not trade calls.

Risk note. The VIX futures roll is used to justify short-volatility strategies as a reliable income stream, and this is the most dangerous marketing in the volatility complex. Selling VIX futures in contango does collect the roll most of the time, and calling that an edge ignores what the premium is for. The roll is compensation for underwriting a curve inversion, and that inversion arrives suddenly and completely: February 2018 turned a multi-year stream of steady income into a 96% loss in a single session and ended the largest inverse product outright. Short-volatility positions carry theoretically unlimited loss, and the roll yield is the premium for a risk that, when it materialises, can take nearly everything at once.

Advantages & limitations

What it is good for

They make expected future volatility directly tradeable at each maturity, turning the abstract VIX into a term structure you can take positions across rather than a single un-tradeable number.
The shape of the curve is a clean regime indicator: contango signals calm with normalisation expected upward, backwardation signals stress with normalisation expected downward.
They let hedgers buy forward protection against volatility spikes without needing to time spot, which is why the curve carries a persistent risk premium in the first place.
Because they price toward a long-run mean rather than toward spot, they encode the market's mean-reversion expectations explicitly, which no spot volatility measure does.
The roll yield is a genuine, harvestable risk premium — provided it is understood and sized as the premium for a tail risk, not mistaken for income.

Where it breaks down

There is no spot VIX to hold, so no cash-and-carry arbitrage anchors the curve — the basis is a risk premium that can persist and can move violently, not a mispricing that will be corrected.
A long position bleeds through contango: the roll cost is paid every period even when spot never moves, so simply holding the future is a losing position most of the time in calm markets.
A short position carries theoretically unlimited loss, and its steady roll income is compensation for a curve inversion that can wipe out years of gains in a single session, as February 2018 showed.
The mean-reversion model that shapes the curve breaks precisely in the events that matter: during a genuine regime shift the long-run mean itself can move, and the curve can stay inverted far longer than the decay rate implies.
In India the contracts are thinly traded, so the term structure the theory describes is sparse and often untradeable at the maturities you would need, making a correct read of the curve academic here.

Common mistakes

Treating the VIX futures curve like a normal futures curve pinned to spot. There is no spot VIX to hold, so cash-and-carry does not apply, and the basis is a risk premium rather than a mispricing to arbitrage.
Holding a long VIX future or long-volatility ETP expecting it to track spot. In contango the contract rolls down toward spot and bleeds value even if the VIX never moves — you can be right that nothing happens and still lose to the roll.
Reading the steady roll income of a short-volatility product as an edge. It is the premium for underwriting a curve inversion; the income is real until the inversion arrives, and then it is not.
Assuming a contango curve is a forecast that volatility will rise. Contango is mean reversion from a low spot toward the long-run mean, not a confident prediction — and the curve is usually in contango regardless of what actually happens next.
Ignoring the tail when sizing a short-volatility position. February 2018 turned years of roll income into a 96% single-session loss and terminated the largest inverse product; a position sized to the average roll is sized to the wrong number.
Relying on the India VIX futures curve as if it were liquid. The contracts trade thinly on the NSE, so the maturities you would need to execute a term-structure trade may have no real market, and a correct read of the curve cannot be acted on.

Professional usage

Volatility desks trade the VIX futures curve as a term structure, not as a single number: they take positions on the slope itself — long the front, short the back, or the reverse — to express a view on whether contango will steepen or flatten, and they harvest the roll yield in calm regimes while hedging the tail that makes the roll dangerous. Relative-value desks compare the futures curve against the level of realised volatility and against the variance risk premium, buying and selling maturities where the mean-reversion-implied fair value diverges from the market. Exchange-traded-product issuers and their hedgers live inside this curve: a long-volatility ETP must roll its futures daily up the contango, and the mechanical, predictable nature of that roll is itself something other desks position around.

Risk managers treat the shape of the VIX futures curve as a systemic gauge. A curve that flips from contango to backwardation is one of the fastest signals that the market has moved from a calm regime to a stressed one, because it means spot has spiked above where the futures expect volatility to settle. And every risk desk that oversees a short-volatility book keeps the February 2018 episode as the reference scenario: the point of studying it is not the size of the number but the speed, a multi-year income stream reversed in a single session, which is the honest shape of the risk that the roll yield pays for.

Key takeaways

VIX futures price toward volatility's long-run mean (≈ 17.5), not toward today's spot, because volatility mean-reverts at a rate of roughly 0.30 per month — so the curve slopes up in calm markets and inverts in stress.
A long position held through contango loses value as each contract rolls down toward spot even if spot never moves; compounded, this roll cost is why long-volatility ETPs decay relentlessly.
The short side collects that roll as income, which looked effortless until February 2018, when the VIX doubled in a session, XIV lost about 96% of its value, and the product was terminated — the premium was always payment for that tail.
There is no spot VIX to hold, so no cash-and-carry arbitrage pins the curve; the basis between futures and spot is a genuine risk premium, not a mispricing.
India VIX futures exist on the NSE but trade thinly, so the term structure the theory describes is sparse and often untradeable at the maturities a real trade would need.

VIX futures are the point where volatility stops being a chart to watch and becomes a curve you can stand on — and the curve has a slope that costs money in one direction and pays it in the other, for reasons that have nothing to do with anyone being right about the future. Because volatility mean-reverts, the futures reach for a long-run average instead of for spot, and the roll that follows is a tax on the long side and a premium on the short side. The short side's premium is the seductive part, and February 2018 is the reason to respect it: a product that did exactly what it promised, collecting steady income right up to the single afternoon that took almost all of it. The most important sentence on this page is the one a marketing department would delete: the roll yield was never income, it was always the price of a risk that had not yet arrived.

Frequently asked questions

What are VIX futures in simple terms?

VIX futures are exchange-traded contracts that let you bet on what the VIX will be on a future date. The odd feature is that they do not price toward today's VIX — they price toward where the VIX usually lives, around 17.5, because volatility mean-reverts. That is why the curve normally slopes upward.

Why does the VIX futures curve usually slope upward?

Because in calm markets spot VIX sits below its long-run mean of roughly 17.5, and futures price toward that mean, so each maturity sits above spot. This upward shape is called contango, and it is the default state of the curve simply because the VIX spends most of its time low.

What is contango in VIX futures?

Contango is the upward-sloping curve of a calm market: spot low, futures higher, each contract climbing toward the long-run mean. With spot at 12.4 and the mean at 17.5, the one-month future prices near 13.7 and the three-month near 15.4. It is the state in which long-volatility positions bleed to the roll.

What is backwardation in VIX futures?

Backwardation is the inverted curve of a stressed market: spot high, futures lower, each contract pointing down toward the mean as the market prices the panic fading. With spot at 27 the one-month future prices near 24.5 and the three-month near 21.4. A flip into backwardation is a fast signal that the regime has turned stressed.

Why do VIX futures price toward a mean instead of toward spot?

Because volatility mean-reverts hard: a VIX of 12 does not stay at 12 and a VIX of 30 does not stay at 30 — both are pulled toward a long-run home around 17.5. So the fair value of a future is the expected VIX at expiry given that reversion, which is above spot when spot is low and below spot when spot is high.

What is roll cost in VIX futures?

Roll cost is the value a long position loses as a held contract ages toward spot in contango. Buy the one-month at 13.7 with spot at 12.4, and if nothing moves the contract converges to 12.4 by expiry, costing you 1.3 points purely for holding it. To stay long you roll into a higher contract and pay again.

Why do long-volatility ETPs decay over time?

Because they are structurally short the roll yield. To maintain exposure they continually sell expiring VIX futures and buy higher ones up the contango curve, paying the roll cost each time. Compounded across every roll, that toll erodes the product's value even when spot VIX is flat — a melting ice cube by design.

How did short-volatility products make money?

By collecting the roll that long-volatility products pay. An inverse product sells the VIX futures that long products buy, harvesting the roll yield as the curve rolls down in contango. Because the VIX is in contango most of the time, this produced steady gains — until a curve inversion revalued the position violently.

What happened to XIV in February 2018?

On 5 February 2018 the VIX roughly doubled in a single session, the futures the inverse products were short gapped upward, and XIV — the largest inverse VIX product — lost about 96% of its value that day. Its terms let the issuer accelerate redemption after a loss that size, and the product was terminated shortly after.

Why is the XIV collapse considered so instructive?

Because it was not a fraud — the product did exactly what it described. It collected roll income for years and then, in one afternoon, paid out the tail risk that income had always been compensating for. It is the clearest lesson in retail volatility trading that steady income and hidden tail risk are the same trade seen from two sides.

Why can't you arbitrage VIX futures against spot?

Because there is no spot VIX to hold — the VIX is a calculation, not an asset you can buy, store or deliver. Normal futures are pinned to spot by cash-and-carry arbitrage; VIX futures have no such anchor, so the basis between futures and spot is a genuine risk premium rather than a mispricing waiting to be corrected.

Does the VIX futures curve predict future volatility?

Only loosely. The curve reflects mean reversion and a risk premium, not a confident forecast — it is usually in contango regardless of what happens next. A rising curve is the market pricing normalisation upward from a low spot, not a prediction that volatility will actually rise.

Are there VIX futures in India?

Yes, the NSE has listed futures on India VIX, but they trade thinly. The term structure that theory describes exists in principle, but in practice the contracts are sparsely traded, so the maturities you would need to execute a curve trade may have little or no real market.

What does a flip from contango to backwardation signal?

It signals a fast regime change from calm to stressed. The flip means spot VIX has spiked above where the futures expect volatility to settle, which only happens in genuine stress. Risk desks watch this transition as one of the quickest gauges that the market has turned.

How is VIX futures roll cost calculated?

Approximately as the gap between the contract you hold and the point on the curve it is converging toward. In contango, a held contract rolls down toward the lower spot as it approaches expiry, so the roll cost per period is roughly that downward distance — paid whether or not spot actually moves.

Why is selling VIX futures dangerous despite the steady roll?

Because the roll income is the premium for underwriting a curve inversion, and that inversion arrives suddenly and completely. Short-volatility positions carry theoretically unlimited loss, and February 2018 turned years of roll income into a 96% single-session loss — the premium was always payment for exactly that event.

What is the long-run mean the VIX futures curve points toward?

In the examples on this site it is taken as roughly 17.5, with a mean-reversion rate of about 0.30 per month. These are illustrative round numbers for the long-run home of the VIX; the real values drift over time, and during a regime shift the mean itself can move, which is when the simple model breaks.

Can I be right about volatility and still lose on a long VIX future?

Yes. If you are long a future in contango and spot VIX simply stays put, the contract still rolls down toward spot and you lose the roll. You can be exactly right that nothing will happen and still pay, every month, for holding the position in case it does.

What is roll yield?

Roll yield is the return earned or paid purely from a futures contract converging toward spot as it ages, separate from any move in spot itself. In VIX contango it is negative for a long position (a cost) and positive for a short one (income) — and that income is compensation for the risk of the curve inverting.

Why does the mean-reversion model of the curve break in a crisis?

Because a genuine regime shift can move the long-run mean itself and keep the curve inverted far longer than the normal decay rate implies. The model assumes reversion toward a fixed mean at a steady speed; in a crisis both the mean and the speed can change, which is precisely when a position built on the model is most exposed.

How do professionals actually trade the VIX futures curve?

They trade the slope, not just the level — long one maturity and short another to bet on the curve steepening or flattening — and they harvest the roll in calm regimes while hedging the tail that makes it dangerous. Relative-value desks compare the curve against realised volatility and the variance risk premium to find maturities that are mispriced.

Voice search & related questions

Natural-language questions people ask about vix futures.

What are VIX futures?

VIX futures are contracts on where the VIX will be on a future date. What makes them strange is that they price toward the VIX's long-run average, around 17.5, rather than toward today's level — because volatility always drifts back toward its mean. That is why the curve usually slopes upward.

Why does holding a long-volatility product lose money over time?

Because of the roll. In a calm market the futures sit above spot, and as each contract you hold ages it slides down toward spot, losing value even if the VIX never moves. The product keeps rolling into higher contracts and paying that cost, month after month, which slowly melts it away.

How did people make steady money selling volatility?

By collecting the roll that long-volatility holders pay. When the curve is in contango — which is most of the time — a short position pockets the drift as futures roll down toward spot. It looked like easy income for years, but it was really the premium for a risk that had not yet shown up.

What went wrong in February 2018?

The VIX roughly doubled in one session, the futures that inverse products were short jumped, and XIV — the biggest of them — lost about 96% of its value in a single day and was shut down. Nothing broke or cheated; the product simply paid out, all at once, the tail risk its steady income had always been charging for.

Why can't you just arbitrage VIX futures back to spot?

Because you cannot hold spot VIX — it is a number, not an asset you can buy and store. Ordinary futures are tied to spot because you can carry the underlying; VIX futures have nothing to carry, so the gap between futures and spot is a real risk premium, not a free arbitrage.

Can I trade VIX futures on Indian markets?

The NSE lists futures on India VIX, so technically yes, but they are thinly traded. The neat term structure the theory describes is sparse in practice, and the specific maturities you would need for a curve trade often have little real liquidity, so reading the curve is easier than acting on it here.

Sources & references

Last reviewed 10 July 2026. Educational content only — not investment advice.