VIX (CBOE Volatility Index)

VIX is calculated from a wide strip of out-of-the-money S&P 500 index options across near-term expirations, using their prices to back out an implied volatility figure, then annualizing it into a single index value. It doesn't measure realized past volatility, how much the S&P actually moved; it measures forward-looking implied volatility, how much options pricing suggests it will move. A VIX reading of 15 corresponds to roughly a 15% annualized expected move for the S&P over the coming month, under the model's assumptions.

Read VIX level relative to its own historical range rather than a single fixed threshold, though a rough rule of thumb treats readings under 15 as unusually calm, 15 to 20 as normal, and anything meaningfully above 20 as elevated. VIX also tends to move inversely with the S&P itself, rising sharply on down days and drifting lower during steady grinds higher, a relationship durable enough that some traders watch VIX moves as a rough proxy for equity risk appetite on any given session, independent of the index level in isolation.

VIX measures expected volatility, not direction. A high VIX reading says the market expects big moves, not which way those moves will go, and VIX has spiked on sharp rallies almost as often as on sharp sell-offs, even though the inverse relationship with price holds more often than not. It's also specific to the S&P 500. A calm VIX doesn't mean every individual stock or sector is quiet, since single-name volatility can diverge meaningfully from the broad index, especially around earnings season when dozens of names see elevated implied volatility while the aggregate S&P reading stays subdued.

Picture VIX sitting at 13.5 during a quiet summer stretch with the S&P grinding to new highs on low daily ranges, consistent with a calm, low-volatility regime. Compare that to VIX jumping to 28 within a single session after a surprise inflation print rattles the market and the S&P drops 3%. That jump reflects the options market rapidly repricing expected future volatility upward, not a forecast of further declines specifically, since VIX would have spiked similarly on an equally sharp, unexpected move to the upside.