What is the VIX Index and Why Should I Pay Attention to It?
The VIX Index is the Chicago Board Options Exchange future volatility measure for the S&P 500. There are three different types of volatility indexes – the VXN for the Nasdaq 100, the VXD for the Dow Jones Industrial Average, and the VIX for the S&P 500. This volatility index shows the market’s expectations for the next 30 days and is calculated from both calls and puts. What does the VIX Index do? The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. When it was first introduced in 1993 by Professor Robert E. Whaley, the index measured the expectations for eight of the S&P 100 companies. Since then, it has expanded to include all of the companies in the S&P 500. This allows for a more accurate measure of the market’s future. How does the VIX predict the market risk? The Chicago Board Options Exchange has a formula that is used to determine the market’s future. The formula includes the stock’s volatility, or the extent to which the stock
