The VIX (CBOE Volatility Index) measures the market's expectation of 30-day forward-looking volatility, derived from the prices of S&P 500 index options. Often called the 'fear gauge' or 'fear index,' it was created in 1993 by the Chicago Board Options Exchange (CBOE) and redesigned in 2003 to use a broader range of option strikes.
How VIX Is Calculated
VIX aggregates the implied volatility across a wide range of S&P 500 option strike prices (both puts and calls) expiring in approximately 30 days. It represents the annualized expected percentage move in the S&P 500. A VIX of 20 implies the market expects a ~20% annualized move, or about Β±1.15% daily.
VIX Level Interpretation
- Below 12: Extreme complacency β historically rare and often precedes volatility spikes
- 12β20: Low to normal volatility β typical of steady bull markets
- 20β30: Elevated uncertainty β market stress or event-driven anxiety
- 30β40: High fear β significant market disruption
- Above 40: Panic/crisis levels
Historic VIX Spikes
- October 2008 (GFC): VIX hit an intraday high of 89.53 (October 24, 2008) β the highest in history. Lehman Brothers' collapse had triggered systemic panic
- March 2020 (COVID): VIX spiked to 82.69 (March 16, 2020) as pandemic lockdowns triggered the fastest 30% drop in S&P 500 history
- August 2015 (China devaluation): VIX surged above 50 overnight
- February 2018 (Volmageddon): XIV (inverse VIX ETN) collapsed, losing 96% of its value in a single day. VIX futures spiked from 13 to 37
- August 2024 (Japan carry trade unwind): VIX briefly spiked above 65 intraday
VIX-Related Products
- VIX Futures: Trade on CBOE Futures Exchange (CFE). The term structure (contango vs. backwardation) is critical for VIX traders
- VIX Options: Options on the VIX index itself β cannot be exercised against the spot VIX
- VIX ETFs/ETNs: VXX, UVXY (leveraged long), SVXY (short). WARNING: Long VIX ETFs suffer severe contango erosion β VXX lost >99.9% since 2009 inception due to persistent negative roll yield
VIX as a Market Indicator
VIX has a strong negative correlation with the S&P 500 (typically β0.6 to β0.8). It tends to spike sharply on market sell-offs but decline gradually during rallies β volatility is asymmetric.
Sources: CBOE, Bloomberg, S&P Global