CBOE's Volatility Index (VIX)

by Wayne A. Thorp, CFA

Over the last couple of years, a great deal of attention has been paid to the Chicago Board Options Exchange CBOE Volatility Index, or VIX for short. Wayne A. Thorp, CFA, editor of Computerized Investing, explains what this indicator is and how to use it. Subscribers to CI have access to a regular column called Technically Speaking that explains chart types, trendlines, and indicators such as the VIX. You can follow Wayne on Twitter @CI_Editor.

What the VIX Measures

The VIX is a measure of the implied or expected volatility of S&P 500 options over the next 30 days. Implied volatility is the market’s estimated future volatility and is reflected in the premiums paid for options.

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Wayne A. Thorp, CFA is a vice president and senior financial analyst at AAII and editor of Computerized Investing. Follow him on Twitter at @AAII_CI.


Discussion

Maurice from Massachusetts posted over 3 years ago:

Howdy:I suggest reading the book by S.Johnson & J.Kwak. I've lost 5% from my IRA since April of 2010. I am moving to CD's to reduce some of the loss. Over and out!


Lee Wenzel from Minnesota posted over 3 years ago:

What do you think of buying VXX as a non-correlated hedge when the VIX is at unusual lows?


Jerome from Texas posted over 3 years ago:

Good article, but forgone conclusion. Never rely on any one indicator. AAII has repeated that over the years.


Mercere from Tennessee posted over 3 years ago:

Everyone's always tring to determine when to buy and when to sell. I've been stopped out, ridden the elevator up & down, sold too soon or too late, and occasionally hit the ball "on the screws."

It seems like the two best pieces of advice I've heard is that "It's hard to lose money taking a profit," and "Pigs get fat & hogs get butchered!"

That said, I'm always open to new advice and information!


Steven Sears from Iowa posted 6 months ago:

A few years ago I bought VXX on the 3rd of July and sold on the 5th of July. I made enough to buy a box of bottle rockets. But I have since learned that volume and volatility are not at all the same thing. Lady Luck is a cruel mistress.


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