VIX (Volatility Index)
What It Is
The VIX is a real‑time index measuring expected stock market volatility over the next 30 days, based on S&P 500 options pricing.
Why It Matters
Often called the “fear gauge,” the VIX reflects investor sentiment and market uncertainty.
How It Works
- Derived from S&P 500 option premiums
- Higher option prices → higher expected volatility
- Moves inversely to market confidence
Key Components
- Implied volatility
- Options pricing
- Market sentiment
Example
During the COVID‑19 crash in 2020, the VIX surged to record levels as uncertainty spiked.
Key Takeaways
- The VIX rises during market stress.
- It is widely used for risk management.
- It does not predict direction — only volatility.