The CBOE Volatility Index ($VIX) is down again, with the S&P 500 moving in the opposite direction…will it last?
By Jeffrey Cohen, President of US Advanced Computing Infrastructure, Inc.
What is the CBOE Volatility Index, or VIX?
The VIX is a traded index that is based on a forward-looking volatility estimate for the S&P 500 Index (options:SPX) in the near-term. It is based on the prices of options on the SPX. It is called a fear index or considered a price of downward insurance on U.S. stock prices.
This is different than a historical volatility metric which we use in the Chicago Quantum Net Score (CQNS) which looks at variance over the past year.
For those who appreciate a traded stock or exchange traded fund (ETF) instead of a theoretical index value, we follow the ProShares VIX Short-Term Futures ETF (VIXY).
We used to measure the BETA of the VIXY when we loaded our model with cross-commodity ETFs, and it was always significant and negative. This means the VIXY, and the VIX, typically moves in an inverse direction to the S&P 500 Index.
