What Up VIX – not VICKS?

What it is – How it works
[Courtesy Wikipedia and staff reporters]

AKA “The Fear Gauge”

The CBOE Volatility Index, known by its ticker symbol VIX, is a popular measure of the stock market’s expectation of volatility implied by S&P 500 index options, calculated and published by the Chicago Board Options Exchange (CBOE). It is colloquially referred to as the fear index or the fear gauge.

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According to Wikipedia, the formulation of a volatility index, and financial instruments based on such an index, were developed by Menachem Brenner and Dan Galai in 1986 and described in academic papers. The authors stated the “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 1986, Brenner and Galai proposed to the American Stock Exchange the creation of a series of volatility indices, beginning with an index on stock market volatility, and moving to interest rate and foreign exchange rate volatility. In 1987, Brenner and Galai met with Joseph Levine and Deborah Clayworth at the Chicago Board of Options Exchange to propose various structures for a tradeable index on volatility; those discussions continued until 1991.

The current VIX concept formulates a theoretical expectation of stock market volatility in the near future. The current VIX index value quotes the expected annualized change in the S&P 500 index over the next 30 days, as computed from the options-based theory and current options-market data.

Assessment

The CBOE retained consultant Robert Whaley in 1992 to develop a tradable volatility instrument based on index option prices.[4] Since 1993, CBOE has published VIX real-time data. Based on historical index option prices, Whaley has computed a data series of retrospective daily VIX levels from January 1986 onward.

Conclusion

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14 Responses

  1. VIX

    Highest level since November 2016.

    Dr. David Marcinko MBA

    Like

  2. VIX

    So, a normal VIX is about 20; under this level is stability while higher is more volatile. The VIX level hit 45 today and closed at 38. Volatility rules.

    Briggs

    Like

  3. UPDATE:

    The CBOE Volatility index’s fall below 20 is a good sign for stocks, if it sticks.

    Dr. David E. Marcinko MBA

    Like

  4. MOM and POPs

    Pessimism among mom-and-pop investors hits a 5-year high.

    http://www.msn.com/en-us/money/markets/pessimism-among-mom-and-pop-investors-hits-a-5-year-high/ar-BBQVc0C?li=BBnbfcN

    Xavier

    Like

  5. VIX

    The CBOE Volatility Index jumped above 30 today, its highest since the major market sell-off in February of this year.

    Dr. David E. Marcinko MBA

    Like

  6. When Averages Lie:
    VIX and CAPE. The historical average for VIX is 19. When the market is calm, “normal”, VIX is usually much lower, like 12–15. But since the historical average is 19, people expect VIX to return to the average level — you can easily see it on VIX futures term structure.
    Frank

    Like

  7. Retail investors got played, today

    Tomorrow is going to be a bloodbath. AstraZeneca, one of the leading candidates for a covid vaccine, suspended their trial because of illnesses. The mRNA method to pass on to cells virus protein information for immunity is untested and has never yielded a vaccine of any type.

    Sprinkle in a notched election that will go to the Supreme court and some violence and we got a perfect storm with a mortgage meltdown with eviction and forbearance ending in December.

    Why you think the Fed stopped using CARE money to buy corporate bonds and is now buying up MBS to shore up bank balance sheets.

    Sam

    Like

  8. VIX

    Wall Street’s VIX Index – popularly known as the ‘fear gauge’ – rose 10% to 20.78 today, signalling a rise in the market’s expectations of volatility in the coming 30 days. The higher the index, the more nervousness is in the market.

    Brent

    Like

  9. The CBOE Volatility Index (VIX) jumped 16.9% to 19.51
    Brent

    Like

  10. University of Michigan

    Consumer Sentiment Index fell to 66.8 for November, representing the lowest level in 10 years due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation.

    Brent

    Like

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