The CBOE Volatility Index® - An Introduction to the VIX® Index
The CBOE Volatility Index (the VIX Index) is designed to measure near-term volatility as indicated by index option prices in the S&P 500 Index (SPX). The index was introduced in 1993 and is considered a benchmark barometer of market volatility.
When introduced in 1993, the original VIX calculation was based on prices of options on the S&P 100 Stock Index (OEX). By 2003, trading of options on the SPX was more active, so the the VIX index calculation was changed and based on SPX options. The VIX index formula was also altered to include a larger number of option contracts. The original VIX index continues to be published under the ticker symbol VXO.
The VIX index is an index of 30-day implied volatility as indicated by the prices of SPX option contracts. Implied volatility rises when the relative prices of options increase. Rising implied volatility is generally caused by an imbalance of demand for options from options buyers over supply of options from sellers. In contrast, volatility falls when the relative prices of options decline. Falling implied volatility is generally caused by an imbalance of supply of options from option sellers over demand for options from buyers. The daily change in the VIX index is an indication of how aggressively SPX option contracts are being purchased or sold.