VIX Term Structure Trade

Entry Logic

• Entry trigger: VIX futures term structure is in steep contango or backwardation.
• Confirmation: The spread between the front-month and second-month VIX futures is at an extreme.
• Timeframe: 1-week to 1-month.
• Location context: Not applicable.
• Market condition: VIX term structure is at an extreme.

Exit Logic

• Profit target: The VIX term structure returns to its normal state.
• Scaling out: Not applicable.
• Trailing stop: Not applicable.
• Signal failure exit: The term structure continues to move against the position.
• Opposite signal exit: Not applicable.
• Time expiration: Exit before the front-month VIX futures contract expires.
• Momentum loss: Not applicable.

Stop Loss Structure

• Hard stop: A predefined loss level on the futures spread.
• Soft stop: Not applicable.
• Max dollar loss: 2% of account capital.
• Max percent loss: 2% of account capital.
• Structural stop: Not applicable.

Risk Management Framework

• Risk per trade: 1% of account capital.
• Daily limit: Not applicable.
• Weekly limit: Not applicable.
• Max drawdown: 15% of account capital.
• R:R requirement: Minimum 2:1 risk-reward ratio.

Position Sizing Model

• Sizing approach: Position size based on the notional value of the VIX futures contracts.
• Volatility adjustment: Not applicable.
• Conviction sizing: Not applicable.
• Scaling in: Not recommended.
• Scaling out: Not recommended.

Trade Filtering

• Market conditions to avoid: When the VIX term structure is flat.
• Specific setups required: Steep contango or backwardation.
• Instruments: VIX futures.
• Time restrictions: Not applicable.
• Chop/news avoidance: Not applicable.

Context Framework

• Trend direction: Not applicable.
• VWAP relationship: Not applicable.
• MA relationship: Not applicable.
• Range location: Not applicable.
• Higher TF alignment: Not applicable.

Trade Management Rules

• Breakeven: Not applicable.
• Scale out: Not applicable.
• Add size: Not applicable.
• Fast vs slow moves: This is a slow-moving trade.

Time Rules

• Optimal window: When the VIX term structure is at an extreme.
• Times to avoid: When the VIX term structure is flat.
• Session notes: Not applicable.

Setup Classification

• A+ setup: Term structure is at a historical extreme.
• A setup: Term structure is significantly deviated from its mean.
• B setup: Term structure is moderately deviated from its mean.
• C setup: Term structure is flat.

Market Selection Criteria

• Instruments: VIX futures.
• Volume: High volume in the VIX futures contracts.
• Volatility: Not applicable.

Statistical Edge Metrics

• Win rate: 60-70%.
• Avg win: 2-3 points on the spread.
• Avg loss: 1-1.5 points on the spread.
• Profit factor: 1.7.
• Expectancy: Positive expectancy based on the historical behavior of the term structure.

Failure Conditions

• When strategy fails: During a prolonged period of market stress.
• Specific scenarios to avoid: Holding the position into futures expiration.

Psychological Rules

• Mental discipline: Must have the patience to hold the position for several weeks.
• Key mental discipline requirements: Discipline to stick to the plan and not over-manage the trade.

Advanced Components

• Regime detection: Not applicable.
• Filters: Not applicable.
• Correlation: Not applicable.
• MTF alignment: Not applicable.

Location

• Where strongest: When the VIX term structure is at historical extremes.
• Where weakest: When the VIX term structure is flat.