Author: Michael Williams
The VIX is a highly touted index on CNBC and in financial circles, but what is it and what does it represent? You may hear it called the “Fear Index”, but that too is a misnomer and not an accurate representation of what it is. Certainly there are times based on the price of this index that it construes fear, but other times it may reflect complacency.
What is it?
The VIX is a number derived from the prices of options premium in the S&P 500 index (which is an index comprising 500 large cap stocks).
It is a good indicator of the expectation of market volatility, note I said “expectation”, it is not representative of the actual volatility or what will happen. This is a very important point; it is just a general assumption based on the premiums investors are willing to pay for ...
...