Volatility Index
Someone asked me, “What is this volatility index I’ve heard about, and how can it be used.” My reply:
The volatility index, or VIX, is an index on the Chicago Options Exchange that gives the expected volatility of the S&P 500 for the next 30 days. It is a measure of market risk based on option calls and puts.
When the VIX is below 20, the market is assumed to be steady. When it is above 30, it is assumed to have a lot of uncertainty. The VIX is currently at 68, which portends lots of fear and risk in the market.
The VIX is not a direct indicator of market direction, but high values mean the market will experience large percentage swings like what we have recently been seeing. Times of high volatility are often times of downward market movement, but not always.
Again, the VIX just indicates the probability of large daily swings in the S&P 500. There are other volatility indexes for the DOW and the Nasdaq 100, but the VIX is probably the most watched.
Stumble it!
The Volatility Index and The Bear Market:
[...] and Conquer covers the Volatility Index or VIX, an index on the Chicago Options Exchange that measures the anticipated volatility of the S & [...]
26 October 2008, 10:17 am