The Adaptive Volatility Edge strategy capitalizes on the analysis of term structures, allowing for strategic positioning based on market conditions. Additionally, it takes advantage of the mean-reversion tendencies commonly observed in volatility markets.

Under normal circumstances, equity markets tend to exhibit a gradual upward drift with occasional minor corrections. In such environments, the term structure of VIX Futures typically assumes a Contango shape. This means that nearer expiries are perceived as more predictable, while uncertainties increase as we look further into the future. In this scenario, profits can be generated by taking covered short positions in VIX Futures, as they gradually decline along the curve, unless there is a substantial increase in volatility.

Conversely, when equity markets experience significant turmoil, such as a market crash, the implied volatility of options tends to surge. This spike in volatility causes the term structure to shift into a state known as backwardation.