VIX Contango/Roll

This chart looks at the front end of the VIX Term Structure (separate from the Cash VIX Term Structure), what it means simply is what the market expects VIX (30 day rolling implied) to be in the future expiry dates. Here we focus on the nearby two futures contracts VX1! and VX2! and looks at any flattening or steepening which gives us interesting insights on the risk pricing in the equity market.

We look at two ratios and see their behavior on a daily basis, alongside 4 distinct levels of -0.1, -0.05, 0.05, 0.10
1. VIX Contango : (VX2!/VX1!)-1
2. VIX Contango Roll : (VX2!/VIX) - 1

Observations :
1. Increase in these ratios is generally bullish for underlying equities, it means that the VIX Term Structure front end is steepening. And vice-versa.
2. Generally when these ratios > 0.05, it indicates bullish equities (bearish volatility). Additionally, -0.05 has seen to be some kind of support for these ratios. Note that these levels are observed only and should not be taken as a guidance of a fixed level, extreme panic can easily overshoot these levels on the downside.

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Feel free to use and comment, if any observations.