VIX definition

The VIX is the Cboe Volatility Index, a measure of the expected 30-day volatility of the S&P 500 implied by the prices of its options. It is widely known as the market's "fear gauge".

The VIX is calculated from a range of S&P 500 index option prices, translating what traders pay for those options into a single annualised volatility figure. It tends to rise when markets fall and uncertainty grows, and to settle at lower levels during calmer, steadier conditions.

Unlike a price index such as the S&P 500, which measures the level of share prices, the VIX measures how much movement traders expect, and it typically moves in the opposite direction to the stock market. Direct exposure is usually taken through volatility products that track VIX futures rather than the index level itself.

VIX Example

You watch the VIX as a gauge of market nerves. Say it sits at 14 during a calm stretch.

A sudden sell-off pushes it to 22, a jump of 8 points. This tells you traders are now pricing in much larger swings in the S&P 500.