The CBOE Volatility Index (VIX) is widely regarded as the go-to metric for measuring market volatility. However, understanding the dynamics of market fear requires a closer examination of the VIX term structure. In this blog post, we’ll delve into the recent changes in the VIX term structure and explore their implications for investors.

On March 16th, the VIX term structure (green) showed a minimal shift higher in fear compared to Tuesday’s levels. This suggests that while there may be some increased anxiety in the market, it has yet to translate into a significant jump in volatility. The short end of the curve remains orderly, indicating that investors are still holding onto their positions with relative stability.

To better understand this phenomenon, let’s take a step back and examine the VIX term structure in more detail. The VIX term structure represents the expected volatility of the S&P 500 index over different time horizons. It is calculated by weighting the prices of options contracts with different strike prices and expiration dates.

The recent changes in the VIX term structure can be attributed to a variety of factors, including shifting market sentiment, economic conditions, and geopolitical events. For instance, the ongoing COVID-19 pandemic has led to increased uncertainty and volatility in global markets, which has translated into higher VIX levels. However, the recent minimal shift higher in fear suggests that investors are still holding onto their positions with relative stability, despite these challenges.

So what does this mean for investors? While the current market dynamics may seem counterintuitive, they highlight the importance of maintaining a disciplined investment approach. In times of heightened uncertainty, it’s essential to stay focused on your long-term goals and avoid making impulsive decisions based on short-term market fluctuations.