VIX

The VIX (Volatility Index), also known as the CBOE Volatility Index, measures the market’s expectation of volatility over the next 30 days. It is often referred to as the “fear gauge” of the stock market because it tends to rise during periods of uncertainty or market turbulence.

Key Points About the VIX:

1. Calculation: Derived from the prices of S&P 500 Index (SPX) options, the VIX reflects expected price fluctuations (volatility) in the SPX.
2. Interpretation:
• Low VIX (< 20): Indicates market stability and low fear. Investors are confident.
• High VIX (> 30): Suggests high uncertainty and fear, often during market sell-offs.
3. Trading the VIX:
• You cannot trade the VIX directly, but there are ETFs (e.g., VXX) and futures contracts designed to track its performance.
• It’s often used as a hedge against declining markets.

How It Relates to the Market:

• Inverse Relationship: The VIX typically moves opposite to the SPX500 and other equity markets. When markets drop, VIX rises, and vice versa.
• Sentiment Gauge: A spike in the VIX signals that traders expect larger price swings, which could indicate panic or hedging activity.