VIX is essentially playing a key part in market microstructure — it tells you about risk, about sentiment, and, most importantly, about the implied volatility environment. But to really understand how VIX works, we have
VIX is essentially playing a key part in market microstructure — it tells you about risk, about sentiment, and, most importantly, about the implied volatility environment. But to really understand how VIX works, we have to understand how it interacts with the macro economy underneath it. Part 1 gave you a brief framework for how VIX behaves: it is a price, an indicator, and should never be viewed as a prophecy. It is mean-reverting, in an almost arithmetic sense. In this piece I want to walk through two important ideas. First, before you trade VIX you need to understand its term structure . Second, we'll zoom out to the macro cycle, so you can see how the VIX print is shaped by macro variables that have repeated the same pattern three times since 1990. The First Edge: Roll Yield Here's the mechanic most retail traders never quite grasp: VIX futures don't expire into zero — they expire in
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