What is the VIX?
The CBOE Volatility Index, or VIX, is the most recognized tool to trade financial market volatility. It measures 30-day expected or forward-looking volatility of the U.S. stock market based on the S&P 500 options. Call options give the buyer the right to buy a stock at a specified price during a specific period of time while put options give buyers the right to sell a stock at a specified price during a specific period of time.
|CBOE||CBOE GLOBAL MARKETS||100.80||-0.62||-0.61%|
When and Where does the VIX trade?
The Chicago Board Options Exchange rolled out the VIX in 1993 during regular trading hours between 9:30 a.m. and 4:15 p.m. ET. In 2016, the CBOE activated the index outside of U.S. trading hours and between 3 a.m. and 9:15 a.m ET.
There are several Exchange Traded Funds [ETFs] that mirror the VIX.
Nicknamed ‘The Fear Gauge’
Traders often refer to the VIX as the so-called ‘fear gauge’ because it rises when fear is prevalent in financial markets. It rose to a record high during the height of the 2008 financial crisis hitting a level of 89.53. It can also be sign of complacency in the market during periods of trading below the 10 level.
Who invented the VIX?
Vanderbilt University’s Robert E. Whaley developed the VIX for the Chicago Board of Trade in 1993. According to his biography, “Professor Whaley is an established expert in derivative contract valuation and risk management and market operation.” He has advised several exchanges, governments as well as law and accounting firms.