Vol regime & term structure

How to tell when options are cheap, when they’re expensive, and when the market is pricing tail risk.

These are the tools for reading what the options market is saying — separate from what the cash equity market is doing. Often the two disagree, and that’s where the signal is.

The vol regime verdict

The Volatility panel on Equities opens with a verdict, not a score — five states derived from explicit rules, in strict priority order:

State	What it means
Panic	The VIX curve is inverted (backwardation). A vol event is in progress — hedges are paying now; don’t sell vol into it.
Underpriced risk	Realized vol is outrunning implied. The market is under-pricing delivered risk — the cheapest honest moment to hedge.
Rich premium	Options are paying sellers well above delivered vol. Protection is overpriced — favor covered calls or trimming hedges over buying puts.
Cheap protection	Low VIX and thin premium — insurance is genuinely cheap, not just optically low.
Normal	Vol is priced about right for what the tape is delivering.

The spine of the verdict is the IV−RV premium: VIX minus 20-day realized S&P volatility — the actual price of protection. A low VIX is not the same as cheap options (2017: VIX 11 vs realized 6 = expensive), and a high VIX is not the same as expensive ones (2020: VIX 30 vs realized 60 = cheap). Comparing implied to delivered is what separates a pricing read from a fear gauge.

Under the verdict sit four dimension rows — premium, term structure, VIX level, vol-of-vol — each with its percentile strip and sparkline. There’s deliberately no composite 0–100 score: any weighting of those dimensions would be arbitrary, so the panel states its rules and shows its inputs instead.

VIX term structure

VIX (1-month implied vol) divided by VIX3M (3-month).

• Ratio > 1 — backwardation. Near-term fear exceeds longer-dated — traders are paying up for immediate protection. The structural panic signal; it overrides everything else in the verdict.
• Ratio < 1 — contango. Normal — longer-dated vol is higher than spot, the market expects calm to persist.
• Rising toward 1 = stress building; falling deeper below 1 = calm reasserting.

SKEW

A separate gauge: how much OTM puts cost relative to ATM options. Tracked as a percentile.

• High SKEW (90th+ %ile) = market is paying up for tail-risk protection. Either a real worry or a smart-money hedge.
• Low SKEW (10th– %ile) = complacency about the left tail.

SKEW is shown in the volatility table but carries no weight in the verdict — it’s constructed from thinly-traded deep-OTM quotes and is too noisy to trust as a signal on its own. Read it as color, not conviction.

Vol of vol (VVIX)

The implied volatility of VIX options. A VVIX spike while spot vol sleeps — someone bidding for VIX calls into a calm tape — is the classic early warning, and it appends a ⚠ chip to the verdict whenever VVIX runs 2σ above its yearly norm, regardless of the state.

Where you see it

• The Volatility panel on Equities — the verdict lives here
• VRP Vol Harvesting model — the deep-dive on the same premium, with harvest/hibernate regimes and strategy simulations
• Cross-Asset Verdict section of the Daily Recap
• The Market Pulse briefing reads the verdict directly