By Pedro Branco · Options trader · +270% fund return since Jan 2022 · Updated May 2026
I trade VXX using this exact framework, and the course is free. The "VXX easiest options strategy" is built around the term structure you're about to read. Entry rules, adjustment guidelines, and real trade examples are included. No credit card → Get the free VXX options course
The VIX term structure, also called the VIX futures curve, is one of the most useful signals available to options traders. It tells you whether the market is pricing in more fear short-term or long-term, and it has direct implications for how volatility products like VXX and UVXY behave. Understanding it is the first step to trading them profitably.
The VIX term structure is the relationship between the prices of short-term and long-term VIX futures contracts. When you plot those prices on a chart, the shape of the resulting curve — upward sloping, downward sloping, or flat — tells you how market participants expect volatility to evolve over time. That shape falls into one of two categories: contango or backwardation.
Contango (Upward Sloping): Longer-term VIX futures contracts are more expensive than shorter-term contracts. Contango tends to occur in quiet market periods and is also the most common shape of the VIX futures curve. Check Figure 1 from Vixcentral.com
Backwardation (Downward Sloping): Longer-term VIX futures contracts are less expensive than shorter-term contracts. Backwardation tends to occur during periods of extreme market volatility. Check Figure 2. from Vixcentral.com
To understand each of these curves, let's look at an example of each scenario.
Contango occurs when longer-term VIX futures contracts are more expensive than shorter-term ones. The curve slopes upward from left to right. This is the most common shape — it tends to appear during calm, low-volatility markets when there's no immediate fear driving near-term demand for protection.
In the example below (fig. 1), the VIX Index is around 13 while the VIX futures contract roughly 120 days out is priced closer to 17. The upward slope reflects the market's expectation that volatility will revert toward its long-term average of around 20 — and it makes sense, because a VIX at 13 is historically low.
What contango means for traders: When the VIX futures curve is in contango and you hold a long volatility position — through long VIX futures, long VIX calls, or long positions in products like VXX or UVXY — time works against you. Each contract you hold loses value as it approaches expiration and "slides down the curve" toward the lower spot price. Conversely, traders with short volatility positions — short VIX futures, short VIX calls, or short positions in VXX and UVXY — benefit from this roll decay over time.
Backwardation occurs when longer-term VIX futures contracts are less expensive than shorter-term ones. The curve slopes downward. This happens during periods of extreme market stress — when fear is elevated right now and participants expect volatility to subside once the crisis passes.
In the example below (fig. 2), the VIX Index is near 70 — a level associated with severe market dislocations. The VIX futures contract about 150 days out is priced around 36, roughly 30 points lower. The market is saying: "Things are very bad right now, but we expect them to calm down."
What backwardation means for traders: When the curve is in backwardation, time works against short volatility positions. Each short VIX futures contract you hold will "slide up the curve" as expiration approaches — moving toward the higher spot price and generating losses if the VIX stays elevated. Long volatility traders — long VXX, long UVXY, long VIX calls — benefit in this environment. This is why backwardation is a warning sign for anyone running short volatility strategies.
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The term structure is one of the first things I check before entering a VXX position — and one of the clearest filters I use to decide whether conditions favour a new short volatility trade.
When the curve is in deep contango — meaning VIX futures are significantly more expensive further out than near-term — conditions are typically favourable for the VXX Short Call Vertical strategy. The roll decay works structurally in your favour: the more expensive far-dated futures contracts lose value as they approach expiration and converge toward the lower spot price. You don't need to predict volatility — you just need contango to persist.
When the curve moves into backwardation — as it did in March 2020, during the 2022 rate shock, and in the August 2024 volatility spike — I either avoid new short volatility positions entirely or reduce size significantly. The structural tailwind has reversed. Time is no longer your friend.
The term structure doesn't tell you when to exit a trade — that's driven by price levels, delta, and position P&L. But it tells me which direction the structural forces are pushing before I put capital at risk. It's a filter, not a signal.
I've documented the full framework — including how I use the term structure as an entry filter, how I size positions relative to the curve shape, and the exact rules I follow to manage VXX trades — in the free VXX options course below.
Understanding the VIX term structure won't make you a profitable options trader on its own — but ignoring it will make profitable volatility trading nearly impossible. The shape of the curve tells you whether time is structurally working for you or against you on every volatility position you hold.
In contango: short volatility positions have a structural edge. Roll decay generates returns even if the VIX stays flat.
In backwardation: long volatility positions have the edge. Short volatility is fighting the curve and requires active management.
Most retail traders learn about VIX as a fear index and stop there. Understanding the term structure is what separates traders who use volatility products purposefully from those who repeatedly get run over by mechanics they don't understand.
If you want to see an example on how to apply this in real trades, the full framework is available in the free course below. No cost, no credit card.