The VIX, the Cboe Volatility Index, measures the volatility the options market expects for the S&P 500 over the next 30 days, derived from the prices of S&P 500 index options. It is quoted in annualized percentage points, and because it tends to rise sharply when stocks fall, it is often called the market's fear gauge.
How it works
Cboe calculates the VIX from a wide range of out-of-the-money SPX puts and calls in the two expirations that bracket 30 days, then interpolates to a constant 30-day horizon. The method does not depend on a single pricing model; in effect, it measures the price of 30-day variance, and the VIX is its square root. It is the index equivalent of implied volatility for a single stock.
Because it is annualized, the VIX converts to shorter horizons by dividing by the square root of time:
| Horizon | Approximate one standard deviation move |
|---|---|
| 30 days | VIX ÷ √12, about VIX ÷ 3.5 |
| One trading day | VIX ÷ √252, about VIX ÷ 16 |
Under a normal distribution, the index's move stays within one standard deviation about two times in three. Related indexes apply the same idea elsewhere: VIX3M for three months, VXN for the Nasdaq-100.
How to read it
- Level. Readings in the low teens usually accompany calm, rising markets; readings above 30 usually accompany stress. The long-run average has been around 19 to 20. The VIX closed above 80 during the 2008 financial crisis and again in March 2020.
- Direction. The VIX usually moves opposite to the S&P 500. Investors pay up for puts in a sell-off, and index option skew means falling prices raise implied volatility more than rising prices do. See volatility skew.
- Mean reversion. Spikes tend to fade as conditions settle, and very low readings rarely last indefinitely, though neither has a fixed timetable.
- Term structure. In calm markets, longer-dated volatility is usually priced above the VIX (contango). When the VIX rises above VIX3M, the curve has inverted, a sign of near-term stress. See term structure.
- Scheduled events. The VIX often firms ahead of known risks such as an inflation report or a Fed decision and eases once they pass.
Worked example (illustrative numbers)
Illustrative numbers only, not a recommendation. Suppose the S&P 500 stands at 5,000.
- VIX at 20: the 30-day one standard deviation move is 20 ÷ √12 ≈ 5.8%, about ±290 points, a range of roughly 4,710 to 5,290. The daily figure is 20 ÷ 16 ≈ 1.25%, about ±63 points.
- VIX at 40: both figures double, to about ±11.5% over 30 days and ±2.5% a day.
If the VIX sits at 20 and the index then moves less than 1% a day for several weeks, realized volatility has come in below implied. That gap is common: implied volatility usually exceeds the volatility that follows, which is the premium option sellers collect for bearing the risk of large moves.
Limitations and common mistakes
- It is not a forecast of direction. The VIX prices the size of moves, not which way they go, even though it usually rises when stocks fall.
- It cannot be bought directly. Traders use VIX futures, VIX options or exchange-traded products. VIX options are priced off VIX futures rather than the spot index, futures often trade well above or below spot, and both settle to a special opening quotation on expiration morning.
- Volatility products decay. ETPs that hold VIX futures roll them every month and lose value in contango, so they tend to fall over time even when the VIX does not.
- Fat tails. The standard deviation conversion assumes a normal distribution; real returns have more large moves than that model predicts.
- Only the S&P 500. A low VIX says nothing about the implied volatility of a single stock heading into earnings.
In Clear Tape
The VIX index itself is not shown, because it is not covered by Clear Tape's data license. The free Markets panel on the Today page shows Cboe's front-month VIX future instead, from TradingView, labelled as a future that tracks the index without matching it exactly; quotes may be delayed. Clear Tape's own Fear & Greed index uses SPY's 20-day realized volatility against its 50-day average in place of the VIX. On the Options page, the free SPY card shows the term structure shape and the expected move this week; Pro members can open SPY, or any stock, for its 30-day implied volatility, IV rank and IV against realized volatility. See pricing.
For educational purposes only. Not investment advice.