VIX (CBOE Volatility Index)

Complete definition

The VIX (Volatility Index, ticker: ^VIX) is the CBOE's measure of 30-day implied volatility on S&P 500 (SPX) options. It is calculated from the prices of SPX options across multiple strikes, weighted to produce a single number expressing the market's forward-looking expectation of equity volatility over the next 30 days, annualized. VIX is sometimes called the "fear gauge" because it tends to spike during market sell-offs. When equity markets fall sharply, demand for SPX puts (as portfolio insurance) drives up their implied volatility, which directly feeds into the VIX calculation. Typical VIX levels and what they signal: - **VIX 9-13**: Extreme complacency. Historically associated with market tops. Premium-selling income is small but consistent. - **VIX 13-18**: Calm regime. Normal markets. Most days fall in this range. - **VIX 18-22**: Moderate concern. Iron-condor sellers earn healthy premiums. - **VIX 22-30**: Elevated stress. Term structure may flatten or invert. Defined-risk strategies preferred. - **VIX 30-50**: Crisis. Backwardation likely. Tail risk pronounced. Short-vol strategies blow up here. - **VIX 50+**: Acute crisis. March 2020 COVID peak was ~85. Reserved for systemic events. VIX cannot be directly traded as a security. To get VIX exposure, traders use: - **VIX futures** (VX) — exchange-traded futures on VIX, the most common way to take direct VIX exposure - **VIX ETPs** (VXX, UVXY, SVXY) — exchange-traded products tracking VIX futures (with significant roll-yield drag in contango) - **SPX options** — direct exposure to the volatility VIX measures - **VVIX** — VIX of VIX, the volatility of VIX itself VIX has structural quirks important for retail traders: - **VIX is not a price** — it's an annualized volatility measure. Moves in absolute terms, not percentage of underlying. - **VIX cannot be shorted directly** — only via VIX futures or ETPs, which have roll-yield characteristics. - **VIX is mean-reverting** — sustained periods above 30 are rare; sustained periods below 12 are rare. - **VIX moves more than realized vol** — implied vol typically overshoots realized vol, which is the basis for the volatility risk premium. VIX-related products and concepts: - **VIX term structure**: VIX (30-day), VIX3M (3-month), VIX6M (6-month). Term structure shape matters for vol regime analysis. - **VVIX** (VIX of VIX): typically trades 70-130. High VVIX signals volatility-of-volatility expansion. - **SKEW Index**: separate CBOE index measuring tail-risk pricing of SPX options. For most retail options traders, VIX is a regime indicator rather than a trading vehicle. Knowing whether VIX is in the 12-15 range (calm) or 25-30 range (stressed) is critical for sizing iron condors, choosing strategy structures, and managing exposure.