| In 1993, the Chicago Board Options Exchange (CBOE) introduced the CBOE Volatility Index (VIX) and it quickly became adopted as a benchmark for stock market volatility.
The CBOE provide a range of volatility indices that measure the underlying markets expectation of near term volatility as conveyed by stock index option prices. The most common Volatility Index is the VIX, which is calculated by measuring the market's expectation of 30-day volatility, based on the CBOE S&P 500 index option prices and incorporates information from the volatility "skew".
There are a range of Volatility Indices that are based on different underlying markets, such as:
- CBOE S&P 500 Volatility Index (current VIX)
- CBOE S&P 100 Volatility Index (old VIX)
- CBOE NASDAQ Volatility Index
- CBOE Dow Jones Volatility Index
The original VIX was based on the S&P 100 Index (OEX) option prices, however in 2003 the VIX calculations were changed and are now based on the S&P 500 index option prices. The new VIX calculations incorporate information from the volatility "skew" by using a wider range of strike prices rather than just at-the-money series. The old VIX is still available under a using the ticker symbol VXO.
VIX Trading Ranges
Some investors use the VIX as a gauge of how volatile the market is and future expectations. The following provides an historical guidelines:
- less than 20 = periods of low volatility
- between 20 and 50 = volatile market conditions
- greater than 50 = excessively volatile market conditions
Please note that past price and VIX movement is not a guarantee of future performance.
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