CBOE Volatility Index (VIX)

The CBOE Volatility Index (VIX) is a popular measure of market expectations of near-term volatility, calculated based on the prices of S&P 500 Index Options. Specifically, it reflects the market’s expectation of 30-day volatility, with higher values indicating greater anticipated volatility and uncertainty in the market.

For example, a VIX reading of 20 suggests that the market expects an annualized volatility of approximately 20%, while a reading of 30 implies a higher level of uncertainty. The VIX is often referred to as the “fear gauge” because it tends to rise during periods of market turmoil and uncertainty.

In cases of market events such as economic downturns or geopolitical tensions, the VIX can spike significantly. For instance, during the 2008 financial crisis, the VIX reached historical highs, reflecting the extreme uncertainty among investors. Conversely, during stable market conditions, the VIX may drop to lower levels, indicating confidence among investors.