A higher VIX means higher prices for options (i.e., more expensive option premiums) while a lower VIX means lower option prices or cheaper premiums. Such VIX-linked instruments allow pure volatility exposure and have created a new asset class. Instead, investors can take a position in VIX through futures or options contracts, or through VIX-based exchange-traded products (ETPs). Perhaps the most straightforward way to invest in the VIX is with exchange-traded funds (ETFs) and exchange-traded notes (ETNs) based on VIX futures. As exchange-traded products, you can buy and sell these securities like stocks, greatly simplifying your VIX investing strategy.

It is designed to be a measure of expected volatility over the next 30 days, and is often referred to as Wall Street's "fear gauge." Volatility is one of the primary factors that affect stock and index options’ prices and premiums. As the VIX is the most widely watched measure of broad market volatility, it has a substantial impact on option prices or premiums.

How to Trade the VIX

Miranda is completing her MBA and lives in Idaho, where she enjoys spending time with her son playing board games, travel and the outdoors. The Monday morning peak was the highest level the VIX has hit since March 2020, shortly after the Federal Reserve's emergency actions during the Covid-19 pandemic, according to FactSet. As the Federal Reserve is expected to cut interest rates, investors are seeking defensive strategies, and the Utilities Select Sector SPDR Fund (XLU) stands out as a reliable option, offering stability,... Please bear with us as we address this and restore your personalized lists.

• Experts understand what the VIX is telling them through the lens of mean reversion.
• The VIX index tracks the tendency of the S&P 500 to move away from and then revert to the mean.
• Since option prices are available in the open market, they can be used to derive the volatility of the underlying security.
• NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.
• Expressing a long or short sentiment may involve buying or selling VIX futures.
• Before purchasing a security tied to an index like the VIX, it’s important to understand all of your options so that you can make educated decisions about your investment choices.

Does the Level of the VIX Affect Option Premiums and Prices?

The CBOE Volatility Index—also known as the VIX—is a primary gauge of stock market volatility. The VIX volatility index offers insight into how financial professionals are feeling about near-term market conditions. Understanding how the VIX works and what it’s saying can help short-term traders tweak their portfolios and get a feel for where the market is headed. The CBOE Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX). Because it is derived from the prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility.

Long/Short Volatility

Following the popularity of the VIX, the CBOE now offers several other variants for measuring broad market volatility. Highlights important summary options statistics to provide a forward looking indication of investors' sentiment. In late October 2024, the stock market has mostly avoided the October effect, which can cause significant downdrafts. However, stocks are not out of the woods, as the VIX signals that significant volatility...

Prior to the election, some on Wall Street were worried that it would take weeks, or even months, for a winner to be decided. It’s important to note here that while volatility can have negative connotations, like greater risk, more stress, deeper uncertainty or bigger market declines, volatility itself is a neutral term. It’s simply a statistical measure of price changes for a security or an index. Greater volatility means that an index or security is seeing bigger price changes—higher or lower—over shorter periods of time. For people watching the VIX index, it’s understood that the S&P 500 stands in for “the stock market” or “the market” as a whole. When the VIX index moves higher, this reflects the fact that professional investors are responding to more price volatility in the S&P 500 in particular and markets more generally.

The CBOE Volatility Index (VIX) quantifies market expectations of volatility, providing investors and traders with insight into market sentiment. It helps market participants gauge potential risks and make informed trading decisions, such as whether to hedge or make directional trades. While the VIX itself is an index and cannot be traded, there are funds and notes investors and traders can participate in to gain exposure to the index.

NerdWallet does Best tobacco stocks not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. The higher the VIX, the greater the level of fear and uncertainty in the market, with levels above 30 indicating tremendous uncertainty. Active traders who employ their own trading strategies and advanced algorithms use VIX values to price the derivatives, which are based on high beta stocks. Beta represents how much a particular stock price can move with respect to the move in a broader market index.

In theory, the direction of the moving average (higher, lower or flat) indicates the trend dowmarkets broker video reviews of the market. Many trading systems utilize moving averages as independent variables and market analysts frequently use moving averages to confirm technical breakouts. New Highs/Lows only includes stocks traded on NYSE, NYSE Arca, Nasdaq or OTC-US exchanges with over 5 days of prices, with a last price above $0.25 and below $10,000, and with volume greater than 1000 shares.

The CBOE Volatility Index (VIX), also known as ironfx review the Fear Index, measures expected market volatility using a portfolio of options on the S&P 500. The Barchart Technical Opinion widget shows you today's overall Barchart Opinion with general information on how to interpret the short and longer term signals. Unique to Barchart.com, Opinions analyzes a stock or commodity using 13 popular analytics in short-, medium- and long-term periods. Results are interpreted as buy, sell or hold signals, each with numeric ratings and summarized with an overall percentage buy or sell rating.

The VIX index uses the bid/ask prices of options trading for the S&P 500 index in order to gauge investor sentiment for the larger financial market. The VIX, formally known as the Chicago Board Options Exchange (CBOE) Volatility Index, measures how much volatility professional investors think the S&P 500 index will experience over the next 30 days. Market professionals refer to this as “implied volatility”—implied because the VIX tracks the options market, where traders make bets about the future performance of different securities and market indices, such as the S&P 500. Prices are weighted to gauge whether investors believe the S&P 500 index will be gaining ground or losing value over the near term.

If prices gain a great deal very quickly, or fall very far, very rapidly, the principle of mean reversion suggests they should snap back to their long-term average before long. The U.S. stock market hit speed bumps in early August and early September. The August selloff briefly lifted the volatility index to the third-highest level this century. In the last month, major stock indexes like the S&P 500 have been pulled downward as a result of disappointing earnings reports from big tech stocks. If you've been following financial news, you may have heard the word "volatility" being thrown around a lot — and you may have heard a reference to a volatility measurement called the VIX.