The VIX, often referred to as the volatility index, measures the market’s expectation of price fluctuations in the S&P 500 index options over the next 30 days. Instead of focusing on the direction of price changes, the VIX quantifies how much and how frequently the market is expected to move. VIX values are expressed in percentage points, reflecting this measurement of volatility rather than price level.
Historically, a VIX reading below 20 has often been interpreted as a sign of market stability and lower volatility. Conversely, a VIX reading of 30 or higher typically indicates a period of heightened market volatility and investor uncertainty. However, it’s crucial to understand that trading volatility, as measured by the VIX, is not the same as betting on a market downturn. The market can decline while volatility remains relatively low, and vice versa.
A significant characteristic of the VIX is its negative correlation with the returns of the stock market, particularly the S&P 500. Generally, when the VIX increases, it suggests a higher probability of the S&P 500 decreasing. Conversely, a falling VIX usually accompanies a stabilizing or rising S&P 500. This inverse relationship has led to the belief that the VIX can be a predictor of potential peaks and troughs in the SPX. A common market adage reflects this: “When the VIX is high, it may be time to buy. When the VIX is low, look out below.”
It’s important to remember that increased volatility, as indicated by a higher VIX, inherently implies increased risk. Therefore, prudent risk management strategies are always essential when trading or investing, especially in volatile market conditions.
When engaging with the VIX, it’s crucial to recognize that you are not trading a direct asset. The VIX is an index, not a tangible asset that can be bought or sold directly. Instead, financial instruments like Turbo24 and vanilla options allow traders to take positions on the anticipated movements of the VIX.
The pricing of these instruments is derived from the real-time market price of the VIX. Our pricing reflects the actual market price, ensuring that the price you see represents the percentage movement in the VIX.
