What is Vix – the fear index?
What is Vix? We explain how the fear index could guide your investment decisions.


One trading indicator that is very popular during moments of market uncertainty is the CBOE Volatility index, which is sometimes known as Vix or even called the “fear index”. Vix is calculated from the price of 30-day call and put options on S&P 500 futures traded on the Chicago Board Options Exchange.
Call options give you the right, but not the obligation, to buy a specific asset at a set price at a set time, while put options give you the right to sell. In other words, it gauges the cost of taking out insurance against price moves in either direction: the greater the cost, the bigger the implied volatility. The index’s long-term average is around 21.
However, while the formula for working out Vix is pretty straightforward, traders don’t agree on how to interpret it. The simplest view is that the higher the Vix, the more volatility traders expect, and the more you should think about selling. However, contrarian investors argue that a high Vix can be a sign that people may be too cautious, which in turn suggests that it is time to buy.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Because Vix itself can be extremely volatile, many people prefer to take a rolling average rather than the daily figure. There have been two key studies on using Vix as a trading indicator. One, by Duncan Lamont of asset management group Schroders, found that a switching strategy based on moving into bonds when the Vix exceeded 35 would have lagged the market, returning 7.6% between 1990 and 2020 compared with 9.9% earned from staying fully invested. But Butler University found that while switching would have lowered the raw return in most cases, it would have cut volatility by even more, leading to a risk-adjusted excess return.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Related articles
- Should we worry about the Vix 'fear gauge'?
- Like it or not, you’re probably on the wrong side of the market
- Beware of a quick Vix
- Investors turn to gold to beat inflation
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.
He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.
Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.
As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.
Follow Matthew on Twitter: @DrMatthewPartri
-
Pinewood Technologies: a drive for growth
Pinewood Technologies’ platform is one of the best in the business. Investors should buy in
-
'EV maker Faraday Future will crash'
Faraday Future Intelligent Electric is failing dismally to live up to its name, says Matthew Partridge
-
Investors should cheer the coming nuclear summer
The US and UK have agreed a groundbreaking deal on nuclear power, and the sector is seeing a surge in interest from around the world. Here's how you can profit
-
8 of the best houses for sale with follies
The best houses for sale with follies in the grounds – from a five-storey Victorian Gothic tower in Tonbridge, Kent, to a former mill in Oxfordshire with gardens that include a folly on an island in a lake
-
A tale of two Reits – why performance matters for valuation
AEW UK and Regional are two Reits that are valued very differently, despite a shared focus on properties outside London
-
Healthcare stocks look cheap, but tread carefully
Shares in healthcare companies could get a shot in the arm if uncertainty over policy in the US wanes, but are they worth the risk?
-
The Palace of Westminster is falling down
The Palace of Westminster is in need of repair, but the bill is prohibitive, says Simon Wilson
-
'It’s time to buy British equities'
Opinion There is no better place to start investing in UK equities than with two of MoneyWeek’s favourite investment trusts, says Max King