Coronavirus Sends VIX Into Backwardation—Here’s What That Means

Usually when “contango” comes up in a markets story, one reaction might be “Huh?” while another might be “Where’s my oil tanker?” That’s because contango and its sister term, backwardation, are used most often in the context of futures markets for commodities. But they can pop up in any derivatives market and during turmoil driven by the spread of the coronavirus, volatility futures have, unusually and perhaps alarmingly, slipped from contango into backwardation. Here’s how to understand what that means and why traders care.

Names for curve structures that map traders’ guesses about what a given contract will be worth in the future. Contango means upward sloping; backwardation, downward. In the oil markets, that means that if traders will pay more to lock in a shipment at a given price several months away than they would for delivery next month, the market’s in contango.