About the Cboe Volatility Index (VIX)
What is the VIX?
The Cboe Volatility Index (VIX) projects the probable range of movement in the S&P 500 over the next 30 days—or the implied or expected volatility—as reflected in the prices of S&P 500 options.
How is implied volatility different from actual volatility?
Rather than measuring realized or historical volatility of the S&P 500, the VIX projects its implied or expected volatility–specifically 30 days in the future.
Why is the VIX sometimes referred to as the “fear gauge”?
The media tend to refer to the VIX as a “fear gauge,” or a measure of investor sentiment, particularly worry. This is because the VIX tends to rise as investors perceive a higher likelihood of equity prices declining.
How has the VIX been different from broad equity markets?
- Negative correlation to the S&P 500: The VIX has historically been negatively correlated with stock performance.
- Convexity: The VIX has tended to rise more dramatically when equity markets fall significantly.
- High volatility: The annualized standard deviation of the percent changes in VIX—the volatility of the VIX—has been significantly higher than the volatility of the major stock indexes.
- Mean reverting: Unlike other asset classes that have tended to increase in price over long periods of time, the VIX has tended to revert to a long-term average after periods of higher or lower levels.
Is there a way to invest in the VIX?
It is not possible to invest in the VIX directly or to replicate performance of the VIX. Investors wishing to reduce U.S. equity portfolio risk or to trade volatility can use products linked to the VIX, such as exchange traded products linked to VIX futures contracts.
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