US Volatility
he 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). Because it is derived from the prices of SPX index options with near-term expiration dates, it generates a 30-day forward projection of volatility. Volatility, or how fast prices change, is often seen as a way to gauge market sentiment, and in particular the degree of fear among market participants.
The index is more commonly known by its ticker symbol and is often referred to simply as “the VIX.” It was created by the Chicago Board Options Exchange (CBOE) and is maintained by Cboe Global Markets. It is an important index in the world of trading and investment because it provides a quantifiable measure of market risk and investors’ sentiments.
KEY TAKEAWAYS
The Cboe Volatility Index, or VIX, is a real-time market index representing the market’s expectations for volatility over the coming 30 days.
Investors use the VIX to measure the level of risk, fear, or stress in the market when making investment decisions.
Traders can also trade the VIX using a variety of options and exchange-traded products, or use VIX values to price derivatives.
How Does the VIX Work?
For financial instruments like stocks, volatility is a statistical measure of the degree of variation in their trading price observed over a period of time. For example, on Sept. 27, 2018, shares of Texas Instruments Inc. (TXN) and Eli Lilly & Co. (LLY) closed around similar price levels of $107.29 and $106.89 per share, respectively.
However, a look below at their price movements over the month (September) indicates that TXN (blue graph) had much wider price swings compared to LLY (orange graph). Thus, TXN had higher volatility than LLY over the one-month period.
The index is more commonly known by its ticker symbol and is often referred to simply as “the VIX.” It was created by the Chicago Board Options Exchange (CBOE) and is maintained by Cboe Global Markets. It is an important index in the world of trading and investment because it provides a quantifiable measure of market risk and investors’ sentiments.
KEY TAKEAWAYS
The Cboe Volatility Index, or VIX, is a real-time market index representing the market’s expectations for volatility over the coming 30 days.
Investors use the VIX to measure the level of risk, fear, or stress in the market when making investment decisions.
Traders can also trade the VIX using a variety of options and exchange-traded products, or use VIX values to price derivatives.
How Does the VIX Work?
For financial instruments like stocks, volatility is a statistical measure of the degree of variation in their trading price observed over a period of time. For example, on Sept. 27, 2018, shares of Texas Instruments Inc. (TXN) and Eli Lilly & Co. (LLY) closed around similar price levels of $107.29 and $106.89 per share, respectively.
However, a look below at their price movements over the month (September) indicates that TXN (blue graph) had much wider price swings compared to LLY (orange graph). Thus, TXN had higher volatility than LLY over the one-month period.
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