VIX definition

VIX is short for the Chicago Board Options Exchange Volatility Index. It is a measure used to track volatility on the S&P 500 index, and is the most well-known volatility index on the markets.

A volatility index is a measure of a particular market’s likelihood of making sudden, unexpected price movements, or its relative instability. The VIX does this by aggregating the implied volatility on a set number of put and call options based on the S&P 500.

The implied volatility of these options is used to calculate a numerical figure for overall 30-day volatility of the S&P 500, which is in turn used as an indicator of general market sentiment. If the VIX gives a value of greater than 30 then the market is seen as volatile, while under 20 is believed to be calm.

Other volatility indices

As well as the VIX, the Chicago Board Options Exchange has launched:

• the VXN, which tracks the Nasdaq 100 index
• the VXD, which tracks the Dow Jones Industrial Average Index

Other major indices around the world will often have their own volatility index.