VIX – S&P VOLA INDEX (IMPLIED VOLA)

The first VIX, introduced by the CBOE in 1993, was a weighted measure of the implied volatility of
eight S&P 100 at-the-money put and call options.
Ten years later, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors’ expectations on future market volatility. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.

VIX can tell us:

-AVG. IMP VOLA OF ATM OPTIONS ON S&P 500
-IT’S CHART IS THE INVERSE CHART OF S&P
-IT’S A FEAR GAUGE OF MARKET
-DIVIDE VIX # BY 3.465 (sqr. root of 12) = EXPECTED PERCENT MOVE OVER NEXT 30 DAYS
– DIVIDE VIX # BY 16 = EXPECTED PERCENT MOVE FOR THE UPCOMING DAY.
-LETS US SEE TREND OF OPTION PRICES AND IF OVER/UNDERVALUED.
– VIX goes outside the Bollinger Band and then comes back in, very good signal market is going to reverse.

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