Decoding the VIX: How the "Fear Index" Calculates Market Movements and Prices
Manage episode 508222217 series 3636603
The episode provides an educational overview of the VIX, which is the ticker symbol for the CBOE Volatility Index and is frequently called the "Fear Index" by investors. This index functions by measuring the implied volatility of S&P 500 options, which helps in determining if option pricing is relatively expensive or cheap. The VIX reading, quoted in percentage points, roughly translates to the expected annualised change in the S&P 500, with a reading of 15, for example, suggesting an expected 15% move up or down over the year. Notably, the VIX often rises sharply during market volatility and crashes, such as the peak near 80 seen during the last major market downturn, while it tends to remain low during steady market uptrends. The calculation method specifically involves using near-term and next-term S&P 500 options, ensuring the calculation rolls forward to avoid unreliable pricing that occurs close to expiration. More info at http://advancedautotrades.com
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