The Cboe Volatility Index, or VIX, has become well known in trading circles as Wall Street’s “fear gauge.â€
The gauge is supposed to be a barometer of investor expectations for stock-market turbulence 30 days out in the future. Here’s how it works: it takes the prices for a wide range of S&P 500 index options contracts, then inputs the prices into a complex formula that generates its level.
This makes sense because when markets get shaky, investors and traders are more likely to reach for options as a form of protection for their portfolios. They’ll also likely pay up for the options contracts.
Read more at:
https://www.wsj.com/articles/vix-101-how-the-volatility-gauge-works-1524398401?mod=e2tw
