VIX Index Chart Volatility S&P 500 Index

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. All such qualifying options should have valid nonzero bid and ask prices that represent the market perception of which options’ strike prices will be hit by the underlying stocks during the remaining time to expiry. 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. 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.

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. The VIX index tracks the tendency of the S&P 500 to move away from and then revert to the mean. When the stock markets appear relatively calm but the VIX index spikes higher, professionals are betting that prices on the S&P 500—and thereby the stock market as a whole—may be moving higher or lower in the near term. When the VIX moves lower, investors may view this as a sign the index is reverting to the mean, with the period of greater volatility soon to end.

CBOE Volatility Index ($VIX)

There are a range of different securities based on the CBOE Volatility Index that provide investors with exposure to the VIX. Downside risk can be adequately hedged by buying put options, the price of which depends on market volatility. Astute investors tend to buy options when the VIX is relatively low and put premiums are cheap. The VIX spiked north of 20 in the lead up to the 2024 election, but settled down after Donald Trump clinched the electoral college in the early hours after Election Day.

The VIX Falls Below 14. The Market’s Fear Gauge Is Calm Heading Into the Holidays.

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. It then started using a wider set of options based on the broader S&P 500 Index, an expansion that allows for a more accurate view of investors’ expectations of future market volatility. A methodology was adopted that remains in effect and is also used for calculating various other variants of the volatility index. Since option prices are available in the open market, they can be used to derive the volatility of the underlying security. Such volatility, as implied by or inferred from market prices, is called forward-looking implied volatility (IV).

• When investors trade options, they are essentially placing bets on where they think the price of a specific security will go.
• We believe everyone should be able to make financial decisions with confidence.
• The CBOE Volatility Index—also known as the VIX—is a primary gauge of stock market volatility.
• When the VIX declines, investors are betting there will be smaller price moves up or down in the S&P 500, which implies calmer markets and less uncertainty.

The formula used by Cboe to calculate the price of VIX is rather complex, and the price of VIX is updated live during trading hours every 15 seconds. To spare you the math headache involved with calculating the price, let’s look instead at the data used to calculate it. The VIX index is specifically measuring expected volatility for another index, the S&P 500. True to its name, the S&P 500 index is composed of 500 of the largest publicly traded companies in the U.S. Because the S&P 500 includes so opencv introduction many large companies across several different market sectors, it is generally viewed as a good indication of how the U.S. stock market is performing overall. 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.

Since the Covid sell-off subsided, the VIX has been subdued, often trading below its longer-term average of 20. Some market experts have speculated that the proliferation of other types of derivatives, including increased trading in zero-day-to-expiration contracts, could be contributing to that. Put options are a type of derivative that traders use to add downside protection to their portfolios. However, the VIX can be traded through futures contracts, exchange-traded funds (ETFs), and exchange-traded notes (ETNs) that own these futures contracts. 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).

S&P Dow Jones Indices: A Practitioner’s Guide to Reading VIX

Options and futures based on VIX products are available for trading on CBOE and CFE platforms, respectively. Volatility values, investors’ fears, and VIX values all move up when the market is falling. The reverse is true when the market advances—the index values, fear, and volatility decline. Since the possibility of such price moves happening within the given time frame is represented by the volatility factor, various option pricing methods (like the Black-Scholes model) include volatility as an integral input parameter. The VIX attempts to measure the magnitude of 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.

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After each calculation the program assigns a Buy, Sell, or Hold value with the study, depending on where the price lies in reference to the common interpretation of the study. For example, a price above its moving average is generally considered an upward trend or a buy. Before investing in any VIX exchange-traded products, you should understand some of the issues that can come with them. Certain VIX-based ETNs and ETFs have less liquidity than you’d expect from more familiar exchange traded securities. ETNs in particular can be less liquid and more difficult to trade as well as may carry higher fees. The VIX has paved the way for using volatility as a tradable asset, albeit through derivative products.

She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies. For the major indices on the site, this widget shows the percentage of stocks contained in the index that are above their 20-Day, 50-Day, 100-Day, 150-Day, and 200-Day Moving Averages. These defensive healthcare picks from the Dow Jones Industrial Average are worth a look at current levels for investors seeking passive income.

Volatility, or how fast prices change, is often seen as a way to gauge market sentiment, and in particular the degree of fear among market participants. One of the most popular and accessible of these is the ProShares gann trend indicator VIX Short-Term Futures ETF (VIXY), which is based on VIX futures contracts with a 30-day maturity. Some exchange-traded securities let you speculate on implied volatility up to six months in the future, such as the iPath S&P 500 VIX Mid-Term Futures ETN (VXZ), which invests in VIX futures with four- to seven-month maturities. Expressing a long or short sentiment may involve buying or selling VIX futures. Alternatively, VIX options may provide similar means to position a portfolio for potential increases or decreases in anticipated volatility.