VIX: The Fear Index

VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period. The VIX Index was introduced by Prof. Robert Whaley in 1993 while he was at Duke University. Whaley currently teaches at Vanderbilt University.

VIX S&P500 5 days graph:





What I want to bring up in this post is the downward trend in the VIX index in the past 3 months, 1 months and 5 days that we should be alert. As you can see, the VIX index has gotten into a downward trend in the past few months and days. It means that the volatility (Implied volatility) have declined among the options. As volatility decline, price of the options also decline. So for those who trade warrants and options in US or HK, December is a month that we should be more cautious.

For more information about the VIX, here are some links to it:
http://en.wikipedia.org/wiki/VIX
http://finance.yahoo.com/q?s=^VIX
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1296743

Thanks
Paul Ng