Glossary · Funds and derivatives
VIX (volatility index)
The VIX is an index of how much the stock market expects the S&P 500 to swing over the next 30 days, calculated from options prices. High means fear.
Also called: VIX, fear index, fear gauge, Cboe Volatility Index, volatility index
In plain words
Insurance gets expensive before a storm. Stock market insurance works the same way: when investors fear big moves, they pay more for options on the S&P 500. The VIX, published by Cboe, turns those prices into one number: the swing the market expects over the next 30 days, at a yearly rate, in percent.
A VIX of 20 means options are priced for the S&P 500 to move about 20% up or down over a year, which works out to roughly 5.8% over the next month. In calm times the VIX sits in the low teens; in panics it jumps above 40.
That is why it is nicknamed the fear gauge. It usually rises when stocks fall, because falls tend to be sudden and investors rush to buy protection.
Example
From the VIX to an expected move
The VIX is a yearly rate. To scale it to a shorter period, divide by the square root of the number of such periods in a year.
- VIX 20, over a month: 20 ÷ √12 ≈ ±5.8%.
- VIX 20, over one trading day: 20 ÷ √252 ≈ ±1.3%.
- VIX 40: double those: about ±11.5% over a month, ±2.5% a day.
- “±” here means one standard deviation: roughly two months in three should stay inside that range, if the options market is right.
On an S&P 500 at 6,000, a VIX of 20 means a typical month’s move of about 350 points either way.
One level deeper
Cboe launched the VIX in 1993 and changed its method in 2003; it now blends the prices of many S&P 500 options expiring in about a month. It measures expected swings in both directions, not a forecast of a fall.
The VIX has closed above 80 only in the worst panics, in late 2008 and in March 2020, and fell below 10 in the calm of 2017. It does not stay high for long: fear fades, and the index tends to drift back toward its long-run average, around the high teens.
You cannot buy the VIX itself, only VIX futures, options and funds built on them. Because VIX futures are usually in contango, funds that hold them tend to lose value over time. Funds betting on a calm VIX can blow up instead: on February 5, 2018 the VIX more than doubled in a day, and some of those funds lost almost everything.
Why it matters
It is the most watched gauge of investor fear, quoted alongside the S&P 500 in market news.
It sets the price of portfolio insurance: when the VIX is high, protection costs a lot.
It has tended to be a little higher than the swings that actually followed, which is the premium investors pay for insurance.
A common mistake
Myth: A high VIX predicts that stocks will fall.
In fact: It measures expected swings in either direction, and it is usually highest after stocks have already fallen. Some of the best days in the market have come when the VIX was at its peak.
Questions people ask
What is a normal VIX level?
Over its history the VIX has averaged around 19 to 20. Readings in the low teens mean calm markets; above 30, real stress; above 40, panic.
How is the VIX calculated?
From the prices of a wide range of S&P 500 call and put options with about 30 days left. Cboe combines them into the volatility those prices imply for the coming month, expressed at a yearly rate.
Can you invest in the VIX?
Not directly. There are VIX futures, VIX options and funds that hold the futures. They often behave very differently from the index itself and are mainly used for short-term trading or hedging.
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About the numbers
- The VIX itself is Cboe’s data, which this site does not republish, so this page has no live VIX number.
- This page explains a term. It is not investment advice.