VIX Index
The VIX (CBOE Volatility Index) measures 30-day forward-looking implied volatility of S&P 500 options, often called the 'fear gauge.'
Concept map
Learn, apply, review
Definition
The VIX (CBOE Volatility Index) measures 30-day forward-looking implied volatility of S&P 500 options, often called the 'fear gauge.'
Use case
Used in risk management workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about VIX Index
VIX is calculated from S&P 500 option prices using a weighted average of implied volatilities. Historically averages ~20; spikes above 30 indicate elevated uncertainty, above 40 signals panic. VIX futures and options allow direct volatility trading. VIX tends to spike when markets fall (negative correlation), making it a natural hedge.
Example: March 2020: COVID-19 panic drove VIX to 82.69, second-highest reading ever (after 2008). October 2021: Markets calm, VIX below 15. Investors buying VIX calls at 15 would have profited enormously as volatility exploded in March 2020.