CBOE Volatility Index ^VIX Stock Price, News, Quote & History Yahoo Finance
During its origin in 1993, VIX was calculated as a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options, when the derivatives market had limited activity and was in its growing stages. Perhaps the most straightforward way to invest in the VIX is with exchange-traded funds (ETFs) and exchange-traded notes (ETNs) based on VIX futures. As exchange-traded products, you can buy and sell these securities like stocks, greatly simplifying your VIX investing strategy. It’s trading classic chart patterns important to note here that while volatility can have negative connotations, like greater risk, more stress, deeper uncertainty or bigger market declines, volatility itself is a neutral term. Greater volatility means that an index or security is seeing bigger price changes—higher or lower—over shorter periods of time.
Following the popularity of the VIX, the CBOE now offers several other variants for measuring broad market volatility. Options and futures based on VIX products are available for trading on CBOE and CFE platforms, respectively. Volatility values, investors’ fears, and VIX values all move up when the market is falling.
The VIX Volatility Index
The first method is based on historical volatility, using statistical calculations on previous prices over a specific time period. This process involves computing various statistical numbers, like mean (average), variance, and finally, the standard deviation on the historical price data sets. During winter 2013, Should i invest in tesla a time of strong stock market performance, the VIX was at around 12. But in March 2020, as a global panic about the COVID-19 pandemic peaked, the index reached a record 82.69. It should be noted that these are rough guidelines ⏤ unexpected events can throw a wrench into markets and a low VIX level today could be followed by a period of extreme volatility if circumstances change.
- When the VIX moves lower, investors may view this as a sign the index is reverting to the mean, with the period of greater volatility soon to end.
- Generally speaking, if the VIX index is at 12 or lower, the market is considered to be in a period of low volatility.
- Downside risk can be adequately hedged by buying put options, the price of which depends on market volatility.
- When uncertainty and fear hits the market, stocks generally fall, and your portfolio could take a hit.
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The second method, which the VIX uses, involves inferring its value as implied by options prices. Options are derivative instruments whose price depends upon the probability of a particular stock’s current price moving enough to reach a particular level (called the strike price or exercise price). In addition to being an index to measure volatility, traders can also trade VIX futures, options, and ETFs to hedge or speculate on volatility changes in the index. While there’s no universally agreed-upon “high” or “low” VIX level, historical data provides context. Readings above 30 are generally considered high, suggesting significant market uncertainty. However, these are guidelines, and interpretation should always consider the broader economic and geopolitical landscape.
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Instead, investors can take a position in VIX through futures or options contracts, or through VIX-based exchange-traded products (ETPs). For example, the ProShares VIX Short-Term Futures ETF (VIXY) and the iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) are two such offerings that track a certain VIX-variant index and take positions in linked futures contracts. The VIX provides valuable insights into market sentiment and anticipated volatility. A diversified strategy and thorough market research remain crucial for navigating the ever-changing financial landscape. There are a range of different securities based on the CBOE Volatility Index that provide investors with exposure to the VIX.
Downside risk can be adequately hedged by buying put options, the price of which depends on market volatility. Astute investors tend to buy options when the VIX is relatively low and put premiums are cheap. As a rule of thumb, VIX values greater than 11 best online trading platforms for day trading of march 2021 30 are generally linked to large volatility resulting from increased uncertainty, risk, and investors’ fear. VIX values below 20 generally correspond to stable, stress-free periods in the markets.
Consider combining VIX analysis with fundamental and technical analysis to gain a more holistic perspective. Remember, market conditions are dynamic and influenced by a myriad of factors beyond the VIX. Experts understand what the VIX is telling them through the lens of mean reversion.