The VIX is derived from S&P 500 options prices and reflects how much volatility traders expect. High VIX indicates fear; low VIX indicates complacency.
Formula
VIX Score: <12 = +80, 12-20 = linear to 0, 20-30 = linear to -60, >30 = -60 to -100Methodology
The VIX, often called the "fear index," measures the market's expectation of 30-day volatility implied by S&P 500 index option prices.
Historical context: - VIX < 12: Very calm markets, possible complacency - VIX 12-20: Normal volatility range - VIX 20-30: Elevated concern, increased hedging activity - VIX 30-40: High fear, typical of corrections - VIX > 40: Extreme fear, crisis levels (2008: peaked ~80, 2020: peaked ~82)
For sentiment scoring, we invert the VIX because low volatility is generally associated with bullish conditions and high volatility with bearish conditions.
The VIX tends to be mean-reverting - extreme readings typically don't persist. Very low VIX can sometimes be a contrarian warning sign of complacency.
How to Interpret
| Range | Label | Meaning |
|---|---|---|
| < 12 | Low Fear | Markets calm - possible complacency |
| 12 to 20 | Normal | Typical volatility levels |
| 20 to 30 | Elevated | Increased market uncertainty |
| ≥ 30 | High Fear | Crisis-level volatility expected |
Data Source
CBOE VIX Index via FRED economic database.
Reference
CBOE (2003). VIX White Paper. Chicago Board Options Exchange
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For Educational Purposes Only
This analysis is not investment advice. Results are based on simplified models using historical data. Past performance does not guarantee future results. All investments carry risk of loss. Consult a qualified financial advisor before making investment decisions.