Timing VX Futures with the Front-End VIX Curve

Combining Bond Volatility and VIX Term-Structure Signals

Last week, I showed that the front end of the VIX term structure is a strong predictor of near-term realized volatility, even when controlling for the VIX level itself and standard HAR persistence effects.

The natural question is whether it translates into better trading.

In a previous post, I discussed a VX futures strategy utilizing bond market implied volatility as a cross-asset predictor of VIX. This week, I replace bond vol with the front-end VIX slope, run both models side by side on the same out-of-sample period, and test what happens when the two signals are combined.

The signals reflect different dimensions of market stress. Bond vol captures macro uncertainty spilling over from bond markets into equity volatility, while the front-end VIX slope reflects concentrated short-term fear embedded in equity options.

Combining them proves to be more effective than using either one alone.