Beta represents how much a particular stock price can move with respect to the move in a broader market index. The VIX has paved the way for using volatility as a tradable asset, albeit through derivative products. CBOE launched the first VIX-based exchange-traded futures contract in March 2004, followed by the launch of VIX options in February 2006. During its origin in 1993, VIX was calculated as a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options, when the derivatives market had limited activity and was in its growing stages. The current version of VIX, which has been in popular use since 2003, offers a more comprehensive look at options IV by considering a range of near-the-money call and put strikes on the broader S&P 500.

The VIX Index, also known as the Fear Index or the Volatility Index, represents the market’s expectation of future volatility. Developed by the Chicago Board Options Exchange (CBOE), it measures the implied volatility of S&P 500 index options. It is calculated using a complex formula that takes into account the prices of options with different strike prices and expiration dates. It is a measure of the level of implied volatility, not historical or statistical volatility, of a wide range of options, based on the S&P 500. This indicator is known as the „investor fear gauge,“ because it reflects investors‘ best predictions of near-term market volatility, or risk. In general, VIX starts to rise during times of financial stress and lessens as investors become complacent.

What Is the CBOE Volatility Index (VIX)?

As a rule of thumb, VIX values greater than 30 are generally linked to large volatility resulting from increased uncertainty, risk, and investors’ fear. VIX values below 20 generally correspond to stable, stress-free periods in the markets. The index is more commonly known by its ticker symbol and is often referred to simply as “the VIX.” It was created by the CBOE Options Exchange and is maintained by CBOE Global Markets. It is an important index in the world of trading and investment because it provides a quantifiable measure of market risk and investors’ sentiments. In addition to VIX options, various VIX-based exchange-traded products (ETPs) exist that track the price action of the index itself and/or some combination of its futures — whether directly, inversely or in a leveraged manner. Some of the more popular and active of these include the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX), the ProShares Ultra VIX Short-Term Futures ETF (UVXY), and the Short VIX Short-Term Futures ETF (SVXY).

What is the Cboe Volatility Index (VIX)?

Specifically, intraday VIX quotes are calculated from a basket of short-term SPX options that are weighted to maintain a constant average maturity of 30 days. The VIX is typically used to measure short-term investor sentiment, but many also use the index as a foundation for active investing strategies. The calculation of the VIX is complex, but it involves aggregating the weighted prices of multiple put and call options on the S&P 500 Index.

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We do not include the universe of companies or financial offers that may be available to you. Moreover, detrended oscillator levels below -5.00 (same for the VIX), generally precede a sell-off, although sometimes this indication of the sell-off may be early, which might have been the case for the Sept. 2003 readings. In fact, the stock indexes appeared to be levitating, given the low readings on the VIX and VXN at that time, as seen in the bear-like S&P pattern on the charts in Figures 1 and 2. In the last month, major stock indexes like the S&P 500 have been pulled downward as a result of disappointing earnings reports from big tech stocks.

1. The current version of VIX, which has been in popular use since 2003, offers a more comprehensive look at options IV by considering a range of near-the-money call and put strikes on the broader S&P 500.
2. Only SPX options are considered whose expiry period lies within more than 23 days and less than 37 days.
3. Large institutional investors hedge their portfolios using S&P 500 options to position themselves as winners whether the market goes up or down, and the VIX index follows these trades to gauge market volatility.
4. While we strive to provide a wide range of offers, Bankrate does not include information about every financial or credit product or service.
5. As such, the VIX can provide valuable information for investors looking to assess market conditions and make informed investment decisions.

Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues.

That said, there are plenty of VIX derivatives and exchange-traded products available for those looking to add long or short volatility exposure to their portfolios. As such, many analysts and market watchers track the VIX as a contemporaneous indicator of investor sentiment, and it’s often referred to casually as the https://forexanalytics.info/ „fear index“ or „fear gauge.“ At that time it was certainly reasonable to expect stock averages to move higher still, but also for them to be accompanied by even lower VXN and VIX levels.

The VIX attempts to measure the magnitude of what is a forex trader in the steps they take, explained price movements of the S&P 500 (i.e., its volatility). The more dramatic the price swings are in the index, the higher the level of volatility, and vice versa. Profit and prosper with the best of Kiplinger’s advice on investing, taxes, retirement, personal finance and much more.

The CBOE Volatility Index—also known as the VIX—is a primary gauge of stock market volatility. The VIX volatility index offers insight into how financial professionals are feeling about near-term market conditions. Understanding how the VIX works and what it’s saying can help short-term traders tweak their portfolios and get a feel for where the market is headed. Such VIX-linked instruments allow pure volatility exposure and have created a new asset class.

Our estimates are based on past market performance, and past performance is not a guarantee of future performance. Large institutional investors hedge their portfolios using S&P 500 options to position themselves as winners whether the market goes up or down, and the VIX index follows these trades to gauge market volatility. The CBOE Volatility Index (VIX) quantifies market expectations of volatility, providing investors and traders with insight into market sentiment. It helps market participants gauge potential risks and make informed trading decisions, such as whether to hedge or make directional trades. While the VIX itself is an index and cannot be traded, there are funds and notes investors and traders can participate in to gain exposure to the index. The CBOE Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX).

The VIX Volatility Index

Examples include the CBOE Short-Term Volatility Index (VIX9D), which reflects the nine-day expected volatility of the S&P 500 Index; the CBOE S&P Month Volatility Index (VIX3M); and the CBOE S&P Month Volatility Index (VIX6M). Products based on other market indexes include the Nasdaq-100 Volatility Index (VXN); the CBOE DJIA Volatility Index (VXD); and the CBOE Russell 2000 Volatility Index (RVX). In addition to being an index to measure volatility, traders can also trade VIX futures, options, and ETFs to hedge or speculate on volatility changes in the index. It should be noted that these are rough guidelines ⏤ unexpected events can throw a wrench into markets and a low VIX level today could be followed by a period of extreme volatility if circumstances change. Let’s take a closer look at some numbers for the VIX, to see what the option markets tell us about the stock market and mood of the investing crowd. Before purchasing a security tied to an index like the VIX, it’s important to understand all of your options so that you can make educated decisions about your investment choices.

The VIX is one the main indicators for understanding when the market is possibly headed for a big move up or down or when it may be ready to quiet down after a period of volatility. However, the VIX can be traded through futures contracts, exchange-traded funds (ETFs), and exchange-traded notes (ETNs) that own these futures contracts. The VIX was the first benchmark index introduced by CCOE to measure the market’s expectation of future volatility. The second method, which the VIX uses, involves inferring its value as implied by options prices. Options are derivative instruments whose price depends upon the probability of a particular stock’s current price moving enough to reach a particular level (called the strike price or exercise price). Her analysis has been featured on CNBC, published in Forbes and SFO Magazine, syndicated to Yahoo Finance and MSN, and quoted in Barron’s, The Wall Street Journal, and USA Today.

The Chicago Board Options Exchange (CBOE) introduced VIX futures and options, allowing investors to trade on expected changes in volatility. Additionally, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) linked to the VIX provide another avenue for investors to access volatility trading strategies. The VIX is derived from the prices of options on the S&P 500 Index and represents the expected volatility over the next 30 days. It is a forward-looking measure that indicates how much investors anticipate the stock market to fluctuate.

Just keep in mind that with investing, there’s no way to predict future stock market performance or time the market. The VIX is merely a suggestion, and it’s been proven to be wrong about the future direction of markets nearly as often as it’s been right. That’s why most everyday investors are best served by regularly investing in diversified, low-cost index funds and letting dollar-cost averaging smooth out any pricing swings over the long term. Instead, investors can take a position in VIX through futures or options contracts, or through VIX-based exchange-traded products (ETPs). For example, the ProShares VIX Short-Term Futures ETF (VIXY) and the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) are two such offerings that track a certain VIX-variant index and take positions in linked futures contracts.