Contango/Backwardation Chart For ThinkOrSwim

[antwerks]

Working on a Contango/Backwardation chart that should be run every day (sh!t changes fast sometimes) somewhat predictive when used longer timeframes

 

[antwerks]

What We’re Looking At

• Top chart:
  • Candles = VIX (Volatility Index, “fear gauge”).
  • Purple line = S&P 500 (SPX) for comparison.
  • Red & cyan lines = moving averages (9 short- and 21 mid-term smoothing).
  • Labels/zones highlight:
    • Complacency Zone when VIX < 15 (low volatility). Other zones are >15Healthy, >20 Stress, >25 Risk off and > 30 Crisis
    • Term Structure: Contango (normal market condition where near-term volatility is cheaper than long-term). Backwardation is the other.
• Bottom panel:
  • IV condition label (currently ~89.9% = “Hot”).
  • Oscillator plotting relative volatility and signals for “LONG SP500” (green) or “SHORT SP500” (red).

Key Observations for Current Chart

1. Current VIX level = ~14.22
   • This sits just inside the Complacency Zone (<15).
   • Historically, when the VIX is this low, it suggests market participants are calm, possibly too calm → often precedes volatility spikes.
2. Comparative with S&P 500
   • Notice the inverse relationship:
     • When VIX spiked in March/April (above 60), the S&P dropped sharply.
     • As VIX trended down, the S&P recovered steadily (purple line moving higher).
   • Currently, SPX is pressing near highs, while VIX remains suppressed — a classic bullish signal but also a risk of complacency.
3. Trend analysis
   • VIX candles are clustered sideways around 12–16 since June, unable to break higher.
   • Moving averages (red/blue) are flattening → suggests indecision, but not yet a breakout.
   • The purple SPX line is still in an uptrend, even as VIX flatlines.
4. IV oscillator (bottom panel)
   • Reads 0.899 (~90%) = “Hot”.
   • This means implied volatility is elevated compared to historical norms — options are expensive.
   • The sentiment markers (LONG/SHORT SP500) show alternating signals:
     • Recent “SHORT SP500” in August → aligns with small uptick in VIX.
     • But not a deep selloff yet.

Overall Interpretation

• SP500 bullish trend remains intact → market keeps pushing higher.
• VIX low but not collapsing further → potential that downside protection (puts) is being bought quietly.
• Hot IV despite low VIX → unusual combination. It means traders expect larger moves of VIX ahead, even though spot volatility looks calm.

Takeaway Comments for now

• Short term: SP500 still bullish, as long as VIX stays below 15–16.
• Medium term: The risk is building — if VIX breaks above 16–18, expect a sharper pullback in SP500.
• Sentiment: Current setup = complacency in spot volatility + elevated option pricing → market may be near a turning point.

Still gathering trading data. The current market is an "easy" one to trade. Looking for some stressors to accommodate some pressure on the chart. So far this has produced excellent set ups for swing trades and am 9 out 9 trades profitably. But again, with the current market in a dominant bull trend this is somewhat easier than if the market was in flux or cycling.

Will post final scripts soon.

 

[jayaa]

What We’re Looking At

• Top chart:
  • Candles = VIX (Volatility Index, “fear gauge”).
  • Purple line = S&P 500 (SPX) for comparison.
  • Red & cyan lines = moving averages (9 short- and 21 mid-term smoothing).
  • Labels/zones highlight:
    • Complacency Zone when VIX < 15 (low volatility). Other zones are >15Healthy, >20 Stress, >25 Risk off and > 30 Crisis
    • Term Structure: Contango (normal market condition where near-term volatility is cheaper than long-term). Backwardation is the other.
• Bottom panel:
  • IV condition label (currently ~89.9% = “Hot”).
  • Oscillator plotting relative volatility and signals for “LONG SP500” (green) or “SHORT SP500” (red).

Key Observations for Current Chart

1. Current VIX level = ~14.22
   • This sits just inside the Complacency Zone (<15).
   • Historically, when the VIX is this low, it suggests market participants are calm, possibly too calm → often precedes volatility spikes.
2. Comparative with S&P 500
   • Notice the inverse relationship:
     • When VIX spiked in March/April (above 60), the S&P dropped sharply.
     • As VIX trended down, the S&P recovered steadily (purple line moving higher).
   • Currently, SPX is pressing near highs, while VIX remains suppressed — a classic bullish signal but also a risk of complacency.
3. Trend analysis
   • VIX candles are clustered sideways around 12–16 since June, unable to break higher.
   • Moving averages (red/blue) are flattening → suggests indecision, but not yet a breakout.
   • The purple SPX line is still in an uptrend, even as VIX flatlines.
4. IV oscillator (bottom panel)
   • Reads 0.899 (~90%) = “Hot”.
   • This means implied volatility is elevated compared to historical norms — options are expensive.
   • The sentiment markers (LONG/SHORT SP500) show alternating signals:
     • Recent “SHORT SP500” in August → aligns with small uptick in VIX.
     • But not a deep selloff yet.

Overall Interpretation

• SP500 bullish trend remains intact → market keeps pushing higher.
• VIX low but not collapsing further → potential that downside protection (puts) is being bought quietly.
• Hot IV despite low VIX → unusual combination. It means traders expect larger moves of VIX ahead, even though spot volatility looks calm.

Takeaway Comments for now

• Short term: SP500 still bullish, as long as VIX stays below 15–16.
• Medium term: The risk is building — if VIX breaks above 16–18, expect a sharper pullback in SP500.
• Sentiment: Current setup = complacency in spot volatility + elevated option pricing → market may be near a turning point.

Still gathering trading data. The current market is an "easy" one to trade. Looking for some stressors to accommodate some pressure on the chart. So far this has produced excellent set ups for swing trades and am 9 out 9 trades profitably. But again, with the current market in a dominant bull trend this is somewhat easier than if the market was in flux or cycling.

Will post final scripts soon.


View attachment 25545

Thanks for this post It looks very interesting and so could you pls share this chart setup if possible and scripts used in this chart.

 

[antwerks]

Thanks for this post It looks very interesting and so could you pls share this chart setup if possible and scripts used in this chart.

I will put it in VIP Forum since it has some scripts for VIP only.