What Is the VIX?
The VIX is an index published by Cboe Global Markets that expresses the expected annualized volatility of the S&P 500 over the coming 30 days, derived from the prices of a wide strip of S&P 500 index options. A VIX reading of 20 implies the options market is pricing roughly 20% annualized volatility for the index.
Because option prices rise when investors pay up for protection, the VIX moves inversely to equities most of the time, jumping when stocks fall sharply and drifting lower in calm bull markets. That behavior earned it the nickname the fear gauge, and it has become shorthand for overall market anxiety.
How the VIX Is Calculated and Traded
The VIX was introduced in 1993 and moved to its current methodology in 2003. Rather than relying on a pricing model, the calculation aggregates the prices of out-of-the-money S&P 500 puts and calls across many strikes to produce a model-free measure of 30-day implied volatility, then annualizes and scales it into index points.
The index itself cannot be bought, but a large ecosystem trades around it. VIX futures launched in 2004 and VIX options in 2006, and exchange-traded products track those futures for retail and institutional investors. Because VIX futures usually sit in contango, long volatility products tend to bleed value over time, a dynamic that famously blew up several short-volatility products in February 2018.
Why the VIX Matters
The VIX has averaged around 19 to 20 over its history, with readings below 15 signaling calm markets and readings above 30 signaling significant stress. Its most dramatic spikes track crises: it closed above 80 during the depths of the 2008 financial crisis and again in March 2020 as pandemic panic peaked, marking its highest closes on record.
For finance professionals the VIX is both a barometer and an input. Traders use it to gauge the cost of hedging, portfolio managers use it in risk models, and strategists cite it constantly in market commentary. Anyone interviewing for markets roles should be able to explain what the VIX measures, why it moves opposite to stocks, and roughly where it sits in the current environment.
