Definition of the Chicago Board Options Exchange Volatility Index (VIX)
The Chicago Board Options Exchange Volatility Index (also known as VIX) is an index designed to track the volatility in the U.S. stock market. Specifically, it aims to measure the expected volatility of the S&P 500 Index through options on those securities.
How the Chicago Board Options Exchange Volatility Index (VIX) Works
The Chicago Board Options Exchange Volatility Index (VIX) is used to track the expected volatility in the stock market based on changes in the price of S&P 500 options. Using a complex formula, the VIX rises when an increase in stock market volatility is expected and falls when decreased volatility is anticipated. The VIX is often used as an indicator of investor confidence and fear. If investors are worried about the market, the VIX will rise. When investors are confident, it will decrease. Therefore, many refer to it as the “fear gauge.” Investors can trade derivatives based on the VIX, which can be useful for various reasons.
Do I Need the Chicago Board Options Exchange Volatility Index (VIX)?
The Chicago Board Options Exchange Volatility Index (VIX) is a unique index that provides investors with access to investment strategies that are difficult to implement through other means. If you are confident that market volatility and investor fear will increase, you can use the VIX to profit from those expectations. It can be challenging to invest in a way that allows you to profit from volatility without using VIX-based securities and derivatives. Investors sometimes use the VIX as a means to hedge
Source: https://www.thebalancemoney.com/what-is-the-cboe-volatility-index-vix-5195018
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