> ## Documentation Index
> Fetch the complete documentation index at: https://auramarkets.mintlify.site/llms.txt
> Use this file to discover all available pages before exploring further.

# 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](/indices/overview) 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.

<Note>
  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.
</Note>

## 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](/indices/overview) — the verdict lives here
* [VRP Vol Harvesting](/macro/vrp) model — the deep-dive on the same premium, with harvest/hibernate regimes and strategy simulations
* **Cross-Asset Verdict** section of the [Daily Recap](/macro/daily-recap)
* The Market Pulse briefing reads the verdict directly