Chicago board options exchange volatility index chart


The VIX is not a directional measure of the likelihood of up vs. Since the introduction of this index in , VIX has often been used by market observers as a measure of investor sentiment and market volatility. It is especially popular as a forward looking volatility measure because unlike backward looking, historically based volatility measures which are plentiful in number, few alternatives exist to measure expectations for future market volatility.

The VIX is the most popular market-based index for measuring expected future volatility. The original methodology was retained at that time for a newly created VXO index. The primary determinants of implied volatility on an option are the current price of the option, the strike exercise price on the option, time to expiration of the options and interest rates.

The VIX is the mostly widely followed indicator of expected future market volatility. One benefit of the VIX is that it supplies an observable metric that can be used to monitor and compare over time changing levels and trends. This permits market watchers and investors to more precisely assess trends in market expectation and prices and respond accordingly. The highest VIX readings occur when investors anticipate that large moves in either direction are likely or at least possible.

When investors perceive the possibility of both significant market downside and upside movements as being low, the value of the VIX should be low. The highest level ever reached on the VIX was This permits market watchers and investors to more precisely assess trends in market expectation and prices and respond accordingly.

The highest VIX readings occur when investors anticipate that large moves in either direction are likely or at least possible. When investors perceive the possibility of both significant market downside and upside movements as being low, the value of the VIX should be low. The highest level ever reached on the VIX was The all time high on the VIX was reached on October 24, at The level of VIX is displayed over time in the chart below with the VIX reaching its all time peak by a considerable margin in October The nature of the relationship between changes in equity market price level and the level of the VIX can be seen in this chart:.

The methodology originally used in calculating the VIX has also been replicated for use in other markets. For example, the NYSE Euronext has similar products based upon options contracts traded on its exchanges. The most important factor in determining the reliability of a volatility index barometer such as the VIX is active trading in the underlying options across a range of exercise prices. Interestingly, actual historical experience indicates that in fact the VIX is not a significantly better predictor of future volatility than a simple measure of recent past volatility.

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