In my personal opinion and from experience, based on the current geo-political environment I would say the VIX is fairly priced in the 20 point range (+/- 2). However, that mean will change as economic, market, and political conditions change. If we look at historical points of the VIX we see that during the height of the great housing crisis in 2008 and 2009 the VIX rocketed to levels far above 50. For our understanding of the model, the options are pricing that the S&P 500 index (the largest 500 companies) will be in a range of +/- 50% over the year, 68% of the time. The VIX quickly came falling back down and then went too far the other way and fell below 15. Again, during the crisis the VIX would have us believe that all is well and that the S&P 500 index has a very low probability of making any radical moves, again the VIX was wrong and it moved back up.
- A higher VIX means higher prices for options (i.e., more expensive option premiums) while a lower VIX means lower option prices or cheaper premiums.
- NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances.
- In other words, when the price of VIX is going up, the price of the S&P 500 is usually heading south.
- The VIX represents the S&P 500 index +/- percentage move, annualized for one standard deviation.
While anyone can download and start streaming content on Vix in countries where it’s available, those who want English content will have to look elsewhere. Given that Vix is available free of cost and doesn’t even require a subscription, it’s natural for users to wonder if the app is available in other languages. The app offers both subtitles and closed captions for select content, but even those are restricted to Spanish. As a https://bigbostrade.com/ result, users won’t be able to watch Spanish language programming with English subtitles either. Developments in the election are also stirring up other parts of the market, and after Trump’s victory at the Iowa caucuses, a Truth Social-linked SPAC skyrocketed 239%. At these tails of extreme there are huge opportunities, for one must see others‘ fear or greed as an opportunity and not be sucked in like the rest of the lemmings.
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The VIX index tracks the tendency of the S&P 500 to move away from and then revert to the mean. When the stock markets appear relatively calm but the VIX index spikes higher, professionals are betting that prices on the S&P 500—and thereby the stock market as a whole—may be moving higher or lower in the near term. When the VIX moves lower, investors may view this as a sign the index is reverting to the mean, with the period of greater volatility soon to end. The Cboe Volatility Index, known as the stock market’s „fear gauge,“ began trading October futures earlier this week.
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This may influence which products we review and write about (and where those products appear on the site), but it in no way affects our recommendations or advice, which are grounded in thousands of hours of research. Our day trading patterns partners cannot pay us to guarantee favorable reviews of their products or services. The first method is based on historical volatility, using statistical calculations on previous prices over a specific time period.
This process involves computing various statistical numbers, like mean (average), variance, and finally, the standard deviation on the historical price data sets. The VIX has the same human flaw of perception that is found in the equity markets that frequently drive stock prices too high or too low. Human perception can quickly lead to greed or fear, rather than focusing on the math and fundamentals. Logic, reason, and wisdom are cast aside as we are driven by irrational greed or fear. Sentiment plays a big role in decision making for the stock markets, and to that extent, it could be a good idea to glance at the VIX.
For instance, in the three months between Aug. 8, 2017, and Nov. 8, 2017, the VIX was up 19%—seemingly suggesting anxiety among market participants and implying that the S&P 500 should be on a downward trajectory. However, the S&P 500 was busy scaling all-time highs during that time frame. The CBOE Volatility Index (VIX) is a measure of expected price fluctuations in the S&P 500 Index options over the next 30 days. The VIX, often referred to as the „fear index,“ is calculated in real time by the Chicago Board Options Exchange (CBOE). As the range of strike prices for puts and calls on the S&P 500 increases, it indicates that the investors placing the options trades are predicting some price movement up or down.
One of the most popular and accessible of these is the ProShares VIX Short-Term Futures ETF (VIXY), which is based on VIX futures contracts with a 30-day maturity. For people watching the VIX index, it’s understood that the S&P 500 stands in for “the stock market” or “the market” as a whole. When the VIX index moves higher, this reflects the fact that professional investors are responding to more price volatility in the S&P 500 in particular and markets more generally. When the VIX declines, investors are betting there will be smaller price moves up or down in the S&P 500, which implies calmer markets and less uncertainty.
VIX and volatility
The VIX is not set by any one person, but rather the results of millions of transactions by millions of traders from around the world. The buyers and sellers move the option prices, more buyers and the premiums go up, more sellers and the premiums go down. The VIX takes a weighted average of all these options prices in the S&P 500 index and derives a single number that is called the VIX.
Key Data
In many cases it is a catalyst event that unleashes the power as one side steps away and forces the other side into full capitulation. The most significant words in that description are expected and the next 30 days. The predictive nature of the VIX makes it a measure of implied volatility, not one that is based on historical data or statistical analysis. The time period of the prediction also narrows the outlook to the near term. At the time, the index only took into consideration the implied volatility of eight separate S&P 100 put and call options.
This formula was developed by Vanderbilt University Professor Robert Whaley in 1993. It should be noted that these are rough guidelines ⏤ unexpected events can throw a wrench into markets and a low VIX level today could be followed by a period of extreme volatility if circumstances change. VIX values are calculated using the CBOE-traded standard SPX options, which expire on the third Friday of each month, and the weekly SPX options, which expire on all other Fridays.
Products based on other market indexes include the Nasdaq-100 Volatility Index (VXN); the CBOE DJIA Volatility Index (VXD); and the CBOE Russell 2000 Volatility Index (RVX). The second method, which the VIX uses, involves inferring its value as implied by options prices. Options are derivative instruments whose price depends upon the probability of a particular stock’s current price moving enough to reach a particular level (called the strike price or exercise price). The 2024 election, which is increasingly looking like a Trump-Biden rematch after the former President’s wins in Iowa and New Hampshire, is now less than 10 months away. And the CBOE volatility contracts shed light on how much risk traders are perceiving in those coming months.
What Does the VIX Tell Us?
Only SPX options are considered whose expiry period lies within more than 23 days and less than 37 days. Like any year, the stock market fluctuates, but some technical analysts have observed patterns in the election cycle. Mark Newton from Fundstrat has said the months from March to August and then November to year-end will perform the best, as they historically have done in election years. Bank of America technical strategist Stephen Suttmeier, meanwhile, said August is likely to be the strongest month after a lackluster January to May. It is sometimes easier to think of trading VIX options opposite of how you would trade the options in the S&P.
Those contracts, which include the November 5 election date, are trading at a wide gap to September futures, Bloomberg data finds. Active traders who employ their own trading strategies and advanced algorithms use VIX values to price the derivatives, which are based on high beta stocks. Beta represents how much a particular stock price can move with respect to the move in a broader market index. For instance, a stock having a beta of +1.5 indicates that it is theoretically 50% more volatile than the market. Traders making bets through options of such high beta stocks utilize the VIX volatility values in appropriate proportion to correctly price their options trades. The VIX attempts to measure the magnitude of price movements of the S&P 500 (i.e., its volatility).
NerdWallet, Inc. is an independent publisher and comparison service, not an investment advisor. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. NerdWallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. Such VIX-linked instruments allow pure volatility exposure and have created a new asset class.