Definition of 'VIX'
VIX -- The Chicago Board Options Exchange Volatility Index, or VIX, as it is better known, is used by stock and options traders to gauge the market's anxiety level.Put simply, it is a mathematical measure of how much the market thinks the S&P 100 Index option, or OEX, will fluctuate over the next 12 months, based upon an analysis of the difference between current OEX put and call option prices. Although the VIX isn't expressed as a percentage, it should be understood as one. A VIX of 22 translates to implied volatility of 22% on the OEX. This means that the index has a 66.7% probability (that being one standard deviation, statistically speaking) of trading within a range 22% higher than -- or lower than -- its current level, over the next year. The VIX rises when put option buying increases; and falls when call buying activity is more robust. (Note: A put option gives the purchaser the right -- but not the obligation -- to sell a security for a specified price at a certain time. A call option is a right to buy the same.) For contrarians, low readings on the VIX are bearish, while high readings are bullish.
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