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.
Subscribe to 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
Sign up for MoneyWeek's newsletters
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
-
How Corpay is cashing in on expenses
Financial technology company Corpay has found a profitable niche managing corporate payments
By Dr Matthew Partridge Published
-
Are UK Reits the most unloved asset?
Recent updates from UK Reits are looking more positive, but the market remains entirely unimpressed
By Cris Sholto Heaton Published
-
Why CEOs deserve a pay rise
Opinion The CEOs of big companies often come under fire for being grossly overpaid. But the truth, as per some economists, is the opposite. Do they merit a pay rise?
By Stuart Watkins Published
-
Rolls-Royce stock jumps 15% – could it climb further?
Aircraft-engine group Rolls-Royce’s CEO has been hailed as a hero for spearheading the firm’s recovery. And the future looks bright, says Matthew Partridge
By Dr Matthew Partridge Published
-
The power of private markets
Interview Helen Steers, co-manager of the Pantheon International investment trust, tells MoneyWeek about the vast array of compelling opportunities in private equity
By Andrew Van Sickle Published
-
Vertex Pharmaceuticals is an uncommon opportunity in rare diseases
Vertex Pharmaceuticals operates in a profitable subsector and is poised for further success
By Dr Mike Tubbs Published
-
Global investors have overlooked these top tips in emerging markets
Opinion Chris Tennant, co-portfolio manager of Fidelity Emerging Markets, picks three attractive companies in emerging markets
By Chris Tennant Published
-
King Coal has not been dethroned yet — should you buy?
The demand for coal is only growing, yet investors don’t seem to want to take advantage of the opportunity, says Rupert Hargreaves
By Rupert Hargreaves Published
-
It’s time to start buying Europe again, says Merryn Somerset Webb
Opinion Europe's stocks are cheap and the economic backdrop is starting to look cheerier, says Merryn Somerset Webb
By Merryn Somerset Webb Published
-
Prosus to buy Just Eat for €4.1 billion as takeaway boom fades
Food-delivery platform Just Eat has been gobbled up by a Dutch rival. Now there could be further consolidation in the sector
By Dr Matthew Partridge Published