VIX is the ticker symbol and popular name for the CBOE Volatility Index, a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. It is calculated and disseminated on a real-time basis by the CBOE, and is often referred to as the fear index. – The VIX
**The VIX, or CBOE Volatility Index (ticker symbol ^VIX), measures the market’s expectation of *30-day forward-looking volatility* for the S&P 500 Index, calculated in real-time from the weighted prices of S&P 500 (SPX) call and put options across a wide range of strike prices.** Often dubbed the “fear index”, it quantifies implied volatility as a percentage, reflecting investor uncertainty and anticipated price swings—higher values signal greater expected turbulence, while lower values indicate calm markets.1,2,3,4,5
Key Characteristics and Interpretation
- Calculation method: The VIX derives from the midpoints of real-time bid/ask prices for near-term SPX options (typically first and second expirations). It aggregates variances, interpolates to a constant 30-day horizon, takes the square root for standard deviation, and multiplies by 100 to express annualised implied volatility at a 68% confidence interval. For instance, a VIX of 13.77% implies the S&P 500 is expected to move no more than ±13.77% over the next year (or scaled equivalents for shorter periods like 30 days) with 68% probability.1,3
- Market signal: It inversely correlates with the S&P 500—rising during stress (e.g., >30 signals extreme swings; peaked at 85% in 2008 crisis) and falling in stability. Long-term average is ~18.47%; below 20% suggests moderate risk, while <15% may hint at complacency.1,2,4
- Uses: Traders gauge sentiment, hedge positions, or trade VIX futures/options/products. It reflects option premiums as “insurance” costs, not historical volatility.1,2,5
Historical Context and Levels
| VIX Range | Interpretation | Example Context |
|---|---|---|
| 0-15 | Optimism, low volatility | Normal bull markets2 |
| 15-25 | Moderate volatility | Typical conditions2 |
| 25-30 | Turbulence, waning confidence | Pre-crisis jitters2 |
| 30+ | High fear, extreme swings | 2008 crisis (>50%)1 |
Extreme spikes are short-lived as traders adjust exposures.1,4
Best Related Strategy Theorist: Sheldon Natenberg
Sheldon Natenberg stands out as the premier theorist linking volatility strategies to indices like the VIX, through his seminal work Option Volatility and Pricing (first published 1988, McGraw-Hill; updated editions ongoing), a cornerstone for professionals trading volatility via options—the core input for VIX calculation.1,3
Biography: Born in the US, Natenberg began as a pit trader on the Chicago Board Options Exchange (CBOE) floor in the 1970s-1980s, during the explosive growth of listed options post-1973 CBOE founding. He traded equity and index options, honing expertise in volatility dynamics amid early market innovations. By the late 1980s, he distilled decades of floor experience into his book, which demystifies implied volatility surfaces, vega (volatility sensitivity), volatility skew, and strategies like straddles/strangles—directly underpinning VIX methodology introduced in 1993.3 Post-trading, Natenberg became a senior lecturer at the Options Institute (CBOE’s education arm), training thousands of traders until retiring around 2010. He consults and speaks globally, influencing modern vol trading.
Relationship to VIX: Natenberg’s framework predates and informs VIX computation, emphasising how option prices embed forward volatility expectations—precisely what the VIX aggregates from SPX options. His models for pricing under volatility regimes (e.g., mean-reverting processes) guide VIX interpretation and trading (e.g., volatility arbitrage). Traders rely on his “vol cone” and skew analysis to contextualise VIX spikes, making his work indispensable for “fear index” strategies. No other theorist matches his practical CBOE-rooted fusion of volatility theory and VIX-applied tactics.1,2,3,4
References
2. https://www.nerdwallet.com/investing/learn/vix
3. https://www.td.com/ca/en/investing/direct-investing/articles/understanding-vix
4. https://www.ig.com/en/indices/what-is-vix-how-do-you-trade-it
5. https://www.cboe.com/tradable-products/vix/
6. https://www.fidelity.com.sg/beginners/what-is-volatility/volatility-index
7. https://www.youtube.com/watch?v=InDSxrD4ZSM
8. https://www.spglobal.com/spdji/en/education-a-practitioners-guide-to-reading-vix.pdf
