Why is the VIX called the “investor fear gauge”?
VIX is based on real-time option prices, which reflect investors’ consensus view of future expected stock market volatility. During periods of financial stress, which are often accompanied by steep market declines, option prices – and VIX – tend to rise. The greater the fear, the higher the VIX level. As investor fear subsides, option prices tend to decline, which in turn causes VIX to decline. It is important to note, however, that past performance does not necessarily indicate future results.
