VIX

For other uses, see Vix (disambiguation).
CBOE Volatility Index (VIX) 2004–2020.

VIX is the ticker symbol and the popular name for the Chicago Board Options Exchange's 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 or fear gauge.

The VIX traces its origin to the financial economics research of Menachem Brenner and Dan Galai. In a series of papers beginning in 1989, Brenner and Galai proposed the creation of a series of volatility indices, beginning with an index on stock market volatility, and moving to interest rate and foreign exchange rate volatility.[1][2]

In their papers, Brenner and Galai proposed, "[the] volatility index, to be named 'Sigma Index', would be updated frequently and used as the underlying asset for futures and options. ... A volatility index would play the same role as the market index plays for options and futures on the index."[3] In 1992, the CBOE hired consultant Bob Whaley to calculate values for stock market volatility based on this theoretical work.[4]

The resulting VIX index formulation provides a measure of market volatility on which expectations of further stock market volatility in the near future might be based. The current VIX index value quotes the expected annualized change in the S&P 500 index over the following 30 days, as computed from options-based theory and current options-market data.

To summarize, VIX is a volatility index derived from S&P 500 options for the 30 days following the measurement date,[5] with the price of each option representing the market's expectation of 30-day forward-looking volatility.[5][6] The resulting VIX index formulation provides a measure of expected market volatility on which expectations of further stock market volatility in the near future might be based.[6]

Like conventional indexes, the VIX Index calculation employs rules for selecting component options and a formula to calculate index values.[6][7] Unlike other market products, VIX cannot be bought or sold directly.[8] Instead, VIX is traded and exchanged via derivative contract, derived ETFs, and ETNs which most commonly track VIX futures indexes.[9]

In addition to VIX, CBOE uses the same methodology to compute the following related products:[6][7]

  • CBOE ShortTerm Volatility Index (VIX9DSM), which reflects 9-day expected volatility of the S&P 500 Index
  • CBOE S&P 500 3-Month Volatility Index (VIX3MSM)
  • CBOE S&P 500 6-Month Volatility Index (VIX6MSM)
  • CBOE S&P 500 1-Year Volatility Index (VIX1YSM)
  • CBOE 1-Day Volatility Index (VIX1D)

CBOE also calculates the Nasdaq-100 Volatility Index (VXNSM), CBOE DJIA Volatility Index (VXDSM) and the CBOE Russell 2000 Volatility Index (RVXSM).[6] There is even a VIX on VIX (VVIX) which is a volatility of volatility measure in that it represents the expected volatility of the 30-day forward price of the CBOE Volatility Index (the VIX).[10]

  1. ^ Brenner, Menachem; Galai, Dan (July–August 1989). "New Financial Instruments for Hedging Changes in Volatility" (PDF). Financial Analysts Journal. 45 (4): 61–65. doi:10.2469/faj.v45.n4.61.
  2. ^ Brenner, Menachem; Galai, Dan (Fall 1993). "Hedging Volatility in Foreign Currencies" (PDF). The Journal of Derivatives. 1 (1): 53–58. doi:10.3905/jod.1993.407870.
  3. ^ Brenner, Menachem; Galai, Dan (1989). "New Financial Instruments for Hedging Changes in Volatility". Financial Analysts Journal. 45 (4): 61–65. doi:10.2469/faj.v45.n4.61. ISSN 0015-198X. JSTOR 4479241.
  4. ^ Pisani, Bob (29 March 2020). "Father of Wall Street's 'fear gauge' sees wild volatility continuing until coronavirus cases peak". CNBC. Retrieved 29 March 2020.
  5. ^ a b Kuepper, Justin. "CBOE Volatility Index (VIX) Definition". Investopedia. Retrieved 2020-04-10.
  6. ^ a b c d e Cite error: The named reference auto was invoked but never defined (see the help page).
  7. ^ a b "How Does the Cboe's VIX® Index Work? | Six Figure Investing". sixfigureinvesting.com. 10 July 2014. Retrieved 2020-04-10.
  8. ^ Iachini, Michael. "VIX ETFs: The Facts and Risks". Schwab Brokerage. Retrieved 2020-04-10.
  9. ^ Reiff, Nathan. "How to Use a VIX ETF in Your Portfolio". Investopedia. Retrieved 2020-04-10.
  10. ^ "Cboe Index Dashboard". www.cboe.com. Retrieved 2020-09-02.