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Can someone explain VIX to me like I'm a 3 year old?
Posted on 2/3/21 at 8:27 am
Posted on 2/3/21 at 8:27 am
If the market is allegedly volatile then why is the index that tracks volatility volatile itself? This seems counterintuitive. Shouldn't volatility have this index on a relatively steady uptick?
And no, I don't have any holdings in this index if you're wondering. This is just a general question/observation.
I figure it might be a good opportunity for others to learn as well. Thanks in advance.
And no, I don't have any holdings in this index if you're wondering. This is just a general question/observation.
I figure it might be a good opportunity for others to learn as well. Thanks in advance.
6
Posted on 2/3/21 at 8:31 am to Powerman
It increases in value when the market is volatile, it's steady when the market is not.
Posted on 2/3/21 at 8:36 am to Chucktown_Badger
quote:
increases in value when the market is volatile, it's steady when the market is not.
Wouldn’t this make it a pretty reliable “buy the dip” and then sell when it’s higher? The market will have times of volatility and stability.
Posted on 2/3/21 at 8:39 am to white perch
I honestly don't know. I only just learned about it in the past few weeks because of you know what. My previous post is about all I know about it 
This post was edited on 2/3/21 at 8:40 am
Posted on 2/3/21 at 8:52 am to Powerman
VIX is an index...it tracks volatility in the options market looking out 30 days. "volatility" is a market term generally meaning "going down".
when the VIX is up, equity markets generally are down and vice versa. you can trade the VIX by buying/selling/calling/putting $VXX.
it is not for the faint of heart (to trade it)
when the VIX is up, equity markets generally are down and vice versa. you can trade the VIX by buying/selling/calling/putting $VXX.
it is not for the faint of heart (to trade it)
Posted on 2/3/21 at 8:56 am to cgrand
quote:
when the VIX is up, equity markets generally are down and vice versa.
So, you can use it as a hedge?
Posted on 2/3/21 at 9:03 am to Powerman
It's tracks the implied volatility of SPX ATM M1/M2 calls and puts. That's it.
Posted on 2/3/21 at 9:04 am to wutangfinancial
quote:Just read this to my three year old. I think he gets it.
It's tracks the implied volatility of SPX ATM M1/M2 calls and puts. That's it.
Posted on 2/3/21 at 9:06 am to WDE24
quote:
Just read this to my three year old. I think he gets it.
Yeah that's definitely beyond my level of understanding
Posted on 2/3/21 at 9:06 am to cgrand
quote:
VXX
At $17.70, now looks like a good time to buy. During periods of volatility, it easily jumps up to $40+.
Posted on 2/3/21 at 9:08 am to cgrand
quote:
VIX is an index...it tracks volatility in the options market looking out 30 days. "volatility" is a market term generally meaning "going down".
Looking at the upward spikes in 2008 and 2020 I'd say that this is extremely accurate
Posted on 2/3/21 at 9:13 am to Powerman
quote:
Can someone explain VIX to me like I'm a 3 year old?
3 year olds do not have a sense of time so probably not.
quote:
why is the index that tracks volatility volatile itself?
Market sentiment changes with time so VIX does as well.
VIX uses a sum of futures contracts to quantify that sentiment.
Posted on 2/3/21 at 10:22 am to white perch
quote:
At $17.70, now looks like a good time to buy. During periods of volatility, it easily jumps up to $40+.
There's also SVXY, an inverse VIX fund. I buy that a lot when VIX spikes.
Posted on 2/3/21 at 10:44 am to white perch
quote:
At $17.70, now looks like a good time to buy. During periods of volatility, it easily jumps up to $40+.
But what exactly are you investing in if you buy it? Sounds like betting which team wins the coin toss in the Super Bowl.
Posted on 2/3/21 at 10:48 am to Powerman
quote:
More specifically, the VIX Index is intended to provide an instantaneous measure of how much the market thinks the S&P 500 Index will fluctuate in the 30 days from the time of each tick of the VIX Index.
quote:
The VIX Index measures the level of expected volatility of the S&P 500 Index over the next 30 days that is implied in the bid/ask quotations of SPX options. Thus, the VIX Index is a forward looking measure, in contrast to realized (or actual) volatility, which measures the variability of historical (or known) prices.
For more info go here to the CBOE....
Posted on 2/3/21 at 11:46 am to Powerman
VIX uses option pricing to derive the volatility that option traders expect in the US large-cap equity market. Options can be priced using a theoretical model (Black-Scholes) that sets the option price based the following inputs:
Current price of stock
Strike price of option (what price does option begin to pay off?)
Expected volatility of stock
Current risk-free rate of interest (e.g. 30 day t-bills)
Time to maturity for option
If you observe an option price for a given stock and maturity, you can also observe stock price, strike price and risk-free rate, etc. This means you can solve the model for the implied volatility. VIX averages out and normalizes implied volatility across several securities to derive an index price.
Current price of stock
Strike price of option (what price does option begin to pay off?)
Expected volatility of stock
Current risk-free rate of interest (e.g. 30 day t-bills)
Time to maturity for option
If you observe an option price for a given stock and maturity, you can also observe stock price, strike price and risk-free rate, etc. This means you can solve the model for the implied volatility. VIX averages out and normalizes implied volatility across several securities to derive an index price.
Posted on 2/3/21 at 12:31 pm to TDTOM
quote:Yes, people buy it to insure their portfolio.
So, you can use it as a hedge?
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