Making Money from Fear….
The Volatility Index, or VIX, shows the market’s expectation of 30-day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options.
It is made up from the cost of ‘insuring’ an investors portfolio against future volatility one way or another. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”.
The VIX is valued from 0-100 with a reading below 15 implying that the market is not fearful of future volatility, with anything above 30 implying that the market is fearful about future volatility.
At present the VIX is low, giving a reading of around 15. On some occasions low VIX readings have precipitated dramatic market corrections. Could the next market crash be looming?
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