VIX Fear Index: what is it and why do traders closely monitor it?

Heard about VIX and think it's some kind of magic? Actually, it's quite simple.

Briefly about the main points

VIX is a volatility index based on S&P 500 options. When the market panics and falls, people massively buy put options for protection, their prices rise, and VIX soars. When everything is calm, VIX sits around the 10-25 point mark.

Basic formula: The stock market falls ↓ → Demand for put options increases ↑ → VIX jumps to 40, 60, 80+ points

How does it work technically?

VIX is calculated based on options with expiration terms of 23-37 days. It is a hybrid of traditional options (the third Friday of each month) and weekly options. Since prices are constantly changing, manual calculation is impossible. Everything is done automatically.

Key point: VIX and S&P 500 move in opposite directions. This is not a coincidence, but the mathematics of options.

How is it used?

Traders hedge their portfolio using VIX futures, options, or specialized ETFs. But be careful — these instruments are associated with serious risks and are not for beginners.

Historical fact: During the 2008 crisis, the VIX exceeded 80 points. In spring 2020, (COVID) — the same. This index is not just a measure of fear, but of panic.

Besides the S&P 500, CBOE has VIX for Dow Jones, Russell 2000, NASDAQ — in short, for all major indices.