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The Chicago Board Options Exchange Volatility Index, commonly known as VIX, allows investors and analysts to interpret the ups and downs in the stock market. The higher the VIX goes, the more unstable the market looks.
Formula
A mathematical formula allows investors to predict a specific percentage change in the S&P 500 based on fluctuations in the VIX.
Highs and Lows
The VIX is measured on a scale from five to 100. Typically, a low VIX figure is around 10 or 12. A high VIX is around 60. The higher the figure, the more volatility one can expect in the market.
Measuring Anxiety
The VIX calculates the premiums investors pay in a particular options market. These options are often used by investors as a kind of insurance against volatility. Prices on the options fluctuate. The VIX tells us that when investors are buying options at high premiums, they do so because they feel uncertain about their portfolios, thus the VIX goes up indicating uncertainty in the market.
Usefulness
Some speculate that the VIX only makes anxious investors even more nervous. Risk is inherent in the stock market, so measuring volatility can be seen as redundant.
History
On Oct. 24, 2008, VIX hit its highest intraday rate of 89.53.
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