What Is VIX (Volatility Index)?
The VIX is the CBOE Volatility Index, calculated from S&P 500 options prices to reflect expected market volatility over the next 30 days. It's expressed as an annualized percentage.
VIX is often called the fear index because it spikes when markets are stressed. Rough interpretation:
- VIX below 12: complacency. Markets are calm. Often precedes corrections — "the calm before the storm." - VIX 12-20: normal range. Routine market activity. - VIX 20-30: elevated stress. Corrections, geopolitical events, earnings season. - VIX above 30: panic. Market crashes, financial crises. Buying opportunities often appear here. - VIX above 50: historic crisis levels. 2008, March 2020, etc.
The VIX is mean-reverting — extreme levels (high or low) tend to revert. This creates trading strategies around VIX itself (via VIX futures or volatility ETFs), though these are highly speculative.
For general traders, VIX is most useful as a regime indicator. Low VIX = trend-following works; high VIX = mean-reversion and defensive positioning works.
Related terms
- Implied Volatility (IV) — Market-expected future volatility, derived from options prices.
- Volatility — A statistical measure of how much an asset's price varies over a period.
- Options Contract — A derivative giving the right (but not obligation) to buy or sell an asset at a set price by a set date.