Volatility Index (VIX)
IntermediateThe Volatility Index (VIX) is an index published by Cboe Global Markets that measures the market’s expectation of volatility in the US stock market over the next 30 days, based on prices of options on the S&P 500 index.
The VIX is calculated from the prices of a wide range of S&P 500 index options. When investors expect bigger market moves, they pay more for options, especially for protection against falls, and the VIX rises.
The VIX is expressed as an annualized percentage. A reading of 20 suggests the market expects the S&P 500 to move within a range of roughly 20% over a year, or about 5.8% over a month, with about two-thirds probability.
The VIX is often called the fear gauge, because it tends to rise sharply when stock markets fall. It typically sits in the teens during calm periods and has spiked above 80 during severe crises, such as in 2008 and March 2020.
Investors can trade VIX futures, options and related exchange-traded products, but these behave differently from the index itself and can lose value quickly over time. Similar volatility indices exist for other markets, such as Europe and Japan.
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