What is VIX
The VIX volatility index measures how much movement the market expects in the S&P 500 over roughly the next month, calculated from the prices of S&P 500 options.
Implied volatility is the size of future price swings that option prices imply, as opposed to swings that already happened. News often calls the VIX the "fear index" because it usually rises when stocks fall sharply and traders pay more for protection.
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Formal definition
Cboe calculates the VIX from out-of-the-money S&P 500 put and call options across a wide range of strike prices. It uses two option expiries on either side of a fixed one-month horizon and interpolates between them. The result is quoted as an annualised standard deviation, in percentage points. See annualized volatility for how annualising works.
Points for experienced readers:
- Not tradable directly. The index itself is a calculation. Traders get exposure through VIX futures, VIX options, or exchange-traded products and ETNs built on those futures.
- Futures differ from spot. VIX futures often trade above the spot index (contango) in calm periods and below it (backwardation) during stress. Products that roll futures can lose value over time even if the spot VIX does not move.
- Not direction. The VIX measures expected size of moves, not direction. It can rise during a sharp rally, although this is less common.
- Model-free, but not neutral. The formula does not depend on one pricing model, but out-of-the-money puts usually cost more than calls, so downside fear weighs heavily in the reading.
Worked example (hypothetical)
Suppose the VIX shows a value we will call X.
- X is an annualised percentage.
- To get the expected one-month move, divide X by the square root of the number of months in a year.
- The result is roughly a one-standard-deviation range for the S&P 500 over the coming month, in percent, up or down.
So if X doubles, the expected monthly range implied by options also doubles. Prices can still move outside that range; fat tails and black swan events happen more often than a normal distribution suggests. For the arithmetic, use the calculators page.
Where you see the VIX
- Financial news: headlines on a "fear index" spike during sell-offs, a flash crash or a flight to quality.
- Market reports: daily summaries list the VIX next to the major stock indices.
- Trading platforms: charting tools may show the VIX or a volatility instrument linked to VIX futures. If you use a broker such as Exness, check in the personal area or on the official site whether such an instrument is offered and on what conditions.
Leveraged CFD trading on volatility or index instruments can lose money fast, and volatility products can move very sharply. Read risk management before trading any of them.
Related terms
Frequent questions
What is VIX in simple words?
It is a number that shows how much the S&P 500 is expected to move over about the next month, based on option prices.
Why is the VIX called the fear index?
It tends to rise when stocks drop quickly and traders buy options for protection.
Does a high VIX mean the market will fall?
No. It shows expected size of moves, not direction, and it is not a forecast.
Can I buy the VIX itself?
No. Exposure comes through VIX futures, options or products based on them, which behave differently from the index.
Is the VIX the same as historical volatility?
No. Historical volatility measures past moves, while the VIX reflects moves implied by current option prices.