What is the CBOE Volatility Index?
The CBOE Volatility Index (VIX) is a real-time index that represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index (SPX). With prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility. Volatility is seen as a way to gauge market sentiment and in particular fear among market participants.
The index is more commonly known by its ticker symbol and is often referred to simply as “the VIX.” Also, it was created by the Cboe Options Exchange (Cboe) and is maintained by Cboe Global Markets. Moreover, it is an important index in the world of trading and investment. All in all, it provides a quantifiable measure of market risk and investors’ sentiments.
How often is the CBOE Volatility Index calculated?
The VIX Index estimates expected volatility by aggregating the weighted prices of S&P 500 puts and calls over a wide range of strike prices. Specifically, the prices used to calculate VIX Index values are midpoints of real-time SPX option bid/ask price quotations.
How is the CBOE Volatility Index used?
The VIX Index is used as a barometer for market uncertainty. It also provides market participants and observers with a measure of constant, 30-day expected volatility of the U.S. stock market. The VIX Index is not directly tradable. The VIX methodology provides a script for replicating volatility exposure with a portfolio of SPX options. This transcended key innovation that led to the creation of tradable VIX futures and options.
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