VIX is the ticker symbol for the CBOE Volatility Index. The VIX is a measure of the implied volatility for the next 30 days on the S&P 500. The VIX is calculated using both calls and puts for the S&P 500.
The VIX is often called the fear gauge.
The VIX spikes higher in times of fear and broad market sell-offs.
On days where most traders are bullish, call option buying (a bet that the market will move higher) generally outnumbers put option buyers. This kind of market typically reflects greed and a lack of fear. Conversely, on days where most traders are bearish, put option buying (a bet that the market will move lower) outnumbers call option buyers. This increased amount investors are willing to pay for put options shows up in higher readings on the VIX.
VIX is a trademarked ticker symbol for the CBOE Volatility Index, a popular measure of the implied volatility of S&P 500 index options; the VIX is calculated by the Chicago Board Options Exchange (CBOE). Often referred to as the fear index or the fear gauge, the VIX represents one measure of the market's expectation of stock market volatility over the next 30-day period.
The idea of a volatility index, and financial instruments based on such an index, was first developed and described by Professor Menachem Brenner and Prof. Dan Galai in 1986. Professors Brenner and Galai published their research in the academic article "New Financial Instruments for Hedging Changes in Volatility," which appeared in the July/August 1989 issue of Financial Analysts Journal.
In a subsequent paper, Professors Brenner and Galai proposed a formula to compute the volatility index.
Professors Brenner and Galai wrote "Our 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 play for options and futures on the index."
In 1992, the CBOE retained Vanderbilt University Professor Robert Whaley to develop a tradable stock market volatility index based on index option prices. At a January 1993 news conference, Prof. Whaley provided his recommendations, and subsequently, the CBOE has computed VIX on a real-time basis. Based on the history of index option prices, Prof. Whaley computed daily VIX levels in a data series commencing January 1986, available on the CBOE website. Prof. Whaley's research for the CBOE appeared in the Journal of Derivatives.
The VIX is quoted in percentage points and translates, roughly, to the expected movement in the S&P 500 index over the upcoming 30-day period, which is then annualized. "VIX" is a registered trademark of the CBOE.