CBOE Volatility Index (VIX)

The CBOE Volatility Index, commonly known as the VIX, is the world's most widely followed barometer of future equity market volatility and near-term risk. First launched in 1993 by the Chicago Board and Options Exchange, the VIX is calculated by averaging the weighted prices of a basket of put and call contracts on the S&P 500 with expiration dates greater than 23 days but less than 37 days. Since it is derived from short-dated option prices, the implied volatility measure is used to estimate the range of movement of the S&P 500 over the next 30 days. High VIX readings are associated with turbulence and sharp price swings, while low values are linked to complacency and calm trading conditions. The S&P 500 and VIX typically move in opposite directions, especially during risk-off episodes, although the negative correlation is not perfect. In light of the signal it transmits, the VIX can be considered a real-time sentiment indicator; in fact, Wall Street often describes it as the investor fear gauge. The VIX isn't itself investable, but there are several derivative products related to implied volatility, including VIX-linked futures and VIX-linked options that can be used to hedge portfolio risk, diversify, or simply speculate.