The Cboe Volatility Index, commonly known as the VIX, measures the market’s expectations of near-term volatility based on the prices of S&P 500 index options. Often referred to as the “fear gauge,” the VIX reflects investor sentiment and market uncertainty.
A higher VIX value indicates that investors anticipate significant fluctuations in the S&P 500 over the next 30 days, suggesting increased market uncertainty or fear. Conversely, a lower VIX value implies expectations of stable market conditions.
The VIX is calculated by the Chicago Board Options Exchange (CBOE) using a formula that considers the prices of a wide range of S&P 500 options. This calculation provides a real-time estimate of expected market volatility.
It’s important to note that the VIX measures implied volatility, which reflects market expectations, not actual past volatility. Therefore, it serves as a forward-looking indicator of market sentiment.
For more detailed information, you can visit the CBOE’s official page on the VIX.