VIX Volatility Carry Model (VCM)
There is rich volatility risk premium embedded within the VIX futures market, one of the most popular and liquid futures markets in the world. Since VIX futures started trading in March 2004, approximately 80% of the time the term structure is in contango, meaning the front month contract trades higher than the spot index, the second month contract higher than the front month, and so on.
The roll yield (or carry) earned by shorting the front month future and holding the position to expiration is typically around 10% per month, and can be as high as 20% or more.
Nowadays investors can access this attractive source of alternative beta via Exchange Traded Products actively traded in the US. However, investors should be aware of the potential catastrophic losses that may result in buying these assets, as the probability of ruin is certainly non-zero. Triple3 has designed a much more robust strategy using VIX options to harness this important risk premium.