VIX index, namely "volatility index", is also called "fear index" (or investor fear index). It was introduced by CBOE on 1993 to reflect S&: The fluctuation degree of P 500 index futures measures the change of market expectation psychology in the next 30 days. The daily calculation of VIX index is based on the traditional SPX index option price and its implied volatility level, and the calculation method is very complicated. Because the VIX index can measure market sentiment and evaluate future risks, the market is also called the "panic index", so it is very important to understand the reasons why the VIX index is opposite to the S&P 500 index.
VIX index tends to rise in a bear market environment, and tends to fall or remain stable in a bull market. This is because VIX index is calculated according to implied volatility, and its implied volatility is low in the long-term bullish stock market. When the demand for options is strong, the implied volatility will rise, which usually happens during the decline of the S&P 500 index. A bullish investor will soon buy put options for his portfolio. When the S&P 500 index rises, the demand for options falls, and the VIX index falls accordingly. However, in recent years, the VIX index has changed from a measure of market volatility to an asset class that can be traded through futures, stocks and options exchanges, and trading VIX index futures itself will aggravate its volatility.
It can be seen that there is a strong negative correlation between the S&P 500 index and the VIX index. The stock market crash caused the VIX index to soar. In the past 10 years, the negative correlation between them exceeded -70%. Investors can use the VIX index to identify market changes, especially when VIX trades at the bottom. When the stock market rises gradually, the VIX index will gradually decline to a consolidation state, and at this time, the VIX index is at a very low level, because investors think it is unnecessary to reduce losses through option hedging, suggesting that the market is in a state of complacency; But this state can last for a long time, so it is basically ineffective to use VIX index as a selling signal. However, when the S&P 500 index falls, investors will quickly buy put options and push up the VIX index. Generally speaking, when the market falls, investors tend to overreact, so the VIX index is called a panic barometer.