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VIX Term Structure [ThetaLoop]

What it does

Measures the VIX Term Structure by calculating the ratio between VIX (30-day implied volatility) and VIX3M (3-month implied volatility). This single number tells you whether the options market is pricing short-term fear higher than long-term fear — the definition of a panic regime.

Formula: Ratio = VIX / VIX3M

Why this matters

The VIX level alone is misleading. VIX at 25 can be perfectly normal in a volatile year, or a screaming alarm in a calm one. What actually matters is the shape of the volatility curve.

In normal markets, short-term volatility is cheaper than long-term (Contango). When short-term volatility becomes MORE expensive than long-term, the curve inverts (Backwardation). This only happens when institutional money is panic-buying short-dated protection — the clearest regime signal available for free.

How to read it

Ratio below 0.95 — Deep Contango. Market is calm and complacent. Normal conditions.
Ratio 0.95 to 1.00 — Mild Contango. Standard conditions, nothing unusual.
Ratio 1.00 to 1.05 — Mild inversion. Market is nervous. Worth monitoring.
Ratio above 1.05 — Confirmed Backwardation. Institutional panic-buying of short-term protection. Historically associated with sharp equity selloffs (COVID March 2020, Tariff Shock April 2025).

Best use case: Options sellers and income strategies

If you sell options (covered calls, cash-secured puts, iron condors), this indicator answers the key question: Should I keep selling into elevated volatility, or is this a regime where selling is dangerous?

High VIX in Contango = elevated premiums in a stable regime. Keep selling.
High VIX in Backwardation = elevated premiums in a panic regime. Step aside.

This distinction is what separates "high VIX = opportunity" from "high VIX = trap."

How to use it

Load on any chart (SPY daily recommended). The indicator pulls VIX and VIX3M data automatically via request.security — no manual symbol changes needed.

The info table in the top-right corner shows the current regime classification, exact ratio, both VIX values, and the 5-day rate of change.

Settings

VIX/VIX3M Ratio — Main plot. Color-coded: teal (normal), orange (mild inversion), red (backwardation).
Smoothed EMA(3) — Reduces day-to-day noise for trend reading.
Parity line (1.00) — The critical threshold between Contango and Backwardation.
Alarm line (1.05) — Confirmed Backwardation. This is where it gets serious.

Alerts included

Backwardation Entry — Ratio crosses above 1.05 (panic regime detected)
Contango Recovery — Ratio crosses back below 1.00 (normalization)
VIX Explosion — VIX rose more than 40 percent in 5 trading days (velocity warning)

Limitations (honest disclosure)

This indicator catches fast panic events (flash crashes, sudden selloffs) reliably. It does NOT catch slow bear markets where fear builds gradually across all maturities equally (e.g. the 2022 Fed hiking cycle). For slow regime changes, combine with other tools like trend filters or drawdown monitors.

About

Published by ThetaLoop — quantitative options research.

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ThetaLoop

ThetaLoop | Algorithmic Options Research
🔍 Free CSP Score for any ticker — X-Ray Scanner:
thetaloop.app/xray
(Not financial advice)

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면책사항

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오픈 소스 스크립트

ThetaLoop

ThetaLoop | Algorithmic Options Research
🔍 Free CSP Score for any ticker — X-Ray Scanner:
thetaloop.app/xray
(Not financial advice)

또한 다음에서도: