Ask the Institute

DATE: October 29, 2012

QUESTION:

Why should I pay attention to the Volatility Index (VIX)?

ANSWER:
The CBOE Volatility Index - more commonly known as VIX is an up to the minute estimate of expected volatility. This estimate - the VIX Index - is calculated every few seconds using current bid and ask prices for S&P 500 index options. So, as the SPX Index rises and falls and as bid and ask prices of SPX options change, the VIX Index is continuously recalculated and updated. The goal of the VIX Index is to estimate the market's expectation of volatility over the next 30 days. Many traders find this useful in judging whether volatility, in general, is rising, falling or trending sideways.