The VIX Index explodes in 2025: How to protect your portfolio in times of uncertainty?

The CBOE Volatility Index, better known as VIX, sounded the alarm again in early 2025. After a sharp jump of 30% on January 27, surpassing 19 points, investors were reminded once more why it’s called “the fear indicator.” But behind these movements is more than panic: there are opportunities.

What’s happening with the VIX in 2025

The year started with a flood of news shaking the financial markets. Three main factors explain the erratic behavior of the VIX:

1. Donald Trump’s policies
The arrival of the new presidential term brought decrees and tariff threats toward China and the EU. Each announcement moves the markets, creating uncertainty about how global trade flows will respond. Investors are constantly reevaluating their positions amid unpredictability.

2. The DeepSeek shock
In January, Chinese company DeepSeek announced an open-source language model with computational efficiency surpassing GPT-4. The US tech sector plummeted. Doubts arose instantly: were the tech giants overvalued? Would their AI leadership lose profitability? These questions triggered massive sell-offs, spiking volatility.

3. Macroeconomic uncertainty
Inflation remains uncontrolled, and the Federal Reserve continues to closely monitor whether it will adjust interest rates. Every Fed statement triggers nervousness among investors fearing monetary tightening.

How the VIX really works and why it matters

The VIX index measures the expected 30-day volatility of the S&P 500, based on options prices. It’s a forward-looking indicator: it anticipates what the market believes will happen, not what has already occurred.

The relationship between the VIX and the S&P 500 is inverse. When the market falls, the VIX rises. When calm prevails, the VIX drops. That’s why many investors use it as insurance: if their portfolios decline, VIX positions increase, offsetting losses.

CBOE risk level table:

In 2008, during the financial crisis, the VIX approached 89 points. In March 2020, with COVID-19, it jumped from 57 to 82 points in a single day. These numbers show the magnitude of crises when they occur.

The January spike: why did it stabilize so quickly

What’s interesting about the VIX spike on January 27 was its speed. It rose 30% within hours but then calmed down almost as fast. What happened?

According to UBS analysts, the answer lies in technical factors. Automated funds and trading systems triggered simultaneous rebalancing when alarms sounded. This caused an initial violent spike, but then the “long gamma excess” came into play: many options investors were forced to rebalance their hedges, creating a domino effect that ultimately stabilized prices.

In other words, the trading machine that amplifies movements can also contain them.

Strategies for 2025: safe or speculative?

Investors can approach the VIX from two angles:

Defensive strategy: VIX as insurance
Cautious investors buy VIX derivatives (options, futures, ETFs) when they anticipate market declines. If the S&P 500 drops, their VIX positions rise, neutralizing losses. It’s like a financial airbag. During the pandemic, investors using this strategy effectively protected their portfolios.

Speculative strategy: betting on volatility
Aggressive investors seek instability. They buy VIX derivatives when expecting turbulence, betting that volatility will explode. 2025, with Trump, tariffs, and AI, offers multiple signals for short-term trading of this kind.

How to invest in VIX

You cannot buy VIX directly like a stock. Access is only through derivatives:

Futures contracts: Agreements that replicate the VIX price without physical delivery. Settled in cash.

VIX CFDs: Contracts for difference that allow speculation on movements without owning the index.

ETFs and ETNs: Exchange-traded funds tracking VIX behavior, more accessible for small investors.

When the context is uncertain and volatility is anticipated, investors go long (buy). When calm and interest rates are low, they go short (sell), expecting the VIX to fall.

Technical analysis of the VIX for 2025

Key resistance: Between 20 and 22 points. If the VIX convincingly breaks this level, it would signal a new episode of strong volatility.

Support: Around 15-16 points. The market tends to find stability here, suggesting that below this, perceived risk is low.

Moving averages: The 50-day moving average is above the 200-day, indicating potential short-term bullishness. The RSI hovered around 65 after January peaks, approaching overbought territory.

MACD: In positive territory but with lines narrowing, warning of possible trend changes soon.

Possible scenarios for the rest of the year

Optimistic scenario: Trump stabilizes trade tensions, inflation remains low, the Fed continues rate cuts. Result: VIX gradually falls to 12-15 points.

Neutral scenario: Persistent tensions but no escalation. VIX fluctuates between 16-22 points, with no major surprises.

Pessimistic scenario: Total tariffs, rising inflation, Fed hikes rates. VIX could reach 35-40 points, close to 2020 levels.

What you should remember

The VIX is a mirror of global fear. Although calculated on the S&P 500, its movements shake markets in Europe, Asia, and Latin America. If Wall Street trembles, everything trembles.

It’s not a perfect predictor, but combining the fear indicator with technical analysis and macroeconomic event tracking yields better results than relying on luck.

In 2025, with so much uncertainty, the VIX will remain relevant. Investors who understand and use it strategically—either as protection or speculation—will be better positioned.

Remember: never invest more than you’re willing to lose, especially with derivatives.