What is the VIX?
As FDR famously proclaimed: “The only thing we have to fear is fear itself”. The VIX is a market-traded measure of the anticipated volatility of the stock market as indicated by the S&P 500 index. The VIX is computed and reported on a continuous basis using a complex formula involving option prices. Option prices are used because they provide objective measures of anticipated volatility. Investment products linked to the VIX allow managers of option portfolios to better manage their portfolios. But more importantly, VIX-related investment products can be useful in managing the risk of stock portfolios even when they do not contain options. While the most popular VIX is based on very short-term anticipated volatility, investment products have also been developed that allow risk management for longer-term horizons.