By Marco BösingWhat Is the VIX?
The VIX (CBOE Volatility Index) is an index calculated by the Chicago Board Options Exchange (CBOE) that represents the market's expectation for S&P 500 volatility over the next 30 days. It is derived from the prices of S&P 500 options and is expressed in annualized percentage points.
A VIX reading of 20, for example, implies that the market is pricing in an annualized volatility of approximately 20% for the S&P 500. Because the VIX typically rises when equity markets fall, it is commonly referred to as the "Fear Gauge."
For traders, the VIX is an essential tool for gauging current market sentiment and adapting trading decisions to the prevailing volatility environment. Low VIX readings (below 15) suggest complacency, while readings above 30 indicate elevated fear and uncertainty in the market.