The Fear Index, also known as the VIX Index (CBOE Volatility Index), is an index launched by the Chicago Board Options Exchange (CBOE) to measure volatility. The VIX index is widely used by investors to measure market risk and panic levels, hence the name "fear index". This article will take a closer look at how the Fear Index is calculated and how to interpret it.
1. Calculation method
The VIX index is calculated primarily based on options on the S&P 500 Index**. Specifically, the VIX uses the expected implied volatility of S&P 500 options. Volatility is a measure of the degree of change in an asset**, while implied volatility is the expected volatility derived from options**.
The VIX index is calculated as follows:
1.Select 25 call options and 25 put options for S&P 500 options, for a total of 50 option contracts.
2.The exercise of these 50 options contracts should be within 15% of the current S&P 500**.
3.The implied volatility of these 50 option contracts is calculated and weighted averaged based on options and strikes.
4.The weighted average implied volatility is squared and multiplied by 100 to get the value of the VIX index.
2. How to interpret it
Investors can assess the level of panic in the market by looking at the value of the VIX index. Generally speaking, the higher the value of the VIX index, the higher the level of market panic and the more pessimistic investors are about the future market trendConversely, the lower the value of the VIX index, the lower the level of panic in the market, and the more optimistic investors are about the future market trend.
It is important to note that the VIX index does not directly reflect the rise and fall of the market, but rather reflects the market's expectations for future volatility. In actual investment, investors should combine other market data and economic indicators for comprehensive analysis.
In addition, the VIX index can be used as a reference indicator for investors' asset allocation and risk management. For example, when the VIX index is at a high level, investors may need to reduce the allocation to risky assets and increase the allocation to safe-haven assetsWhen the VIX index is at a low level, investors can appropriately increase the allocation ratio of risk assets.
*The Fear Index (VIX) is an important indicator of market volatility and panic. By understanding how it is calculated and interpreted, investors can better grasp market risks and make informed investment decisions.