VIX was introduced by CBOE (Chicago Board Options Exchange) at 1993, which is an index obtained by weighted average of implied volatility of index options.
Note: panic index = CBOE volatility index.
The implied volatility smile is formed because the volatility of parity series is lower than that of out-of-price series, and market participants are more willing to avoid risks when the index falls than when the index rises. Therefore, when the index falls, the hedging demand for buying put options will increase, and it will also push up the implied volatility of high-priced put options. VIX reflects the views of participants in the options market on the fluctuation of the broader market, so it is often used as a reverse indicator to judge whether the market is long or short.
When VIX is higher, it means that market participants have stronger expectations for the volatility of the market outlook, which also reflects their uneasy psychological state; On the contrary, if VIX goes down, it reflects the mentality that market participants expect the volatility in the market outlook to ease, so VIX is also called the investor fear indicator. When the index falls, VIX usually rises continuously, and when the index rises, VIX will fall. If we look at it from another angle, when VIX is unusually high or low, it means that market participants are in extreme panic, and have not bought put options locally, or are too optimistic to take any hedging action, which is often the information that the market is about to reverse.
VIX index is mainly compiled by standard & poor's; The implied volatility of P500 index option premium is derived, and the put option and the volatility of near and far months are compiled by interpolation method. Because implied volatility mainly reflects market investors' expectations of future index volatility, it also means that when the VIX index is high, it means that investors expect future index volatility to intensify. On the other hand, when the VIX index goes down, it also means that investors expect that the fluctuation of the index will slow down in the future and the index will fall into a narrow pattern. VIX therefore not only represents the views of most people in the market on the future fluctuations of the index, but also clearly reveals the changes in the expected psychology of the market, so it is also called the investor panic index.
In the past, scholars studied the relationship between VIX index and index, and drew two characteristics from it:
First of all, VIX index has the characteristics of recovery. Second, the dynamics of VIX index are related to Standard & Poor's; P-index yield shows a positive correlation trend. Past data from 2003 to the present show that S&; There is a positive correlation between the returns of P500 index and VIX index.
How to interpret VIX index effectively, from VIX index and S&P; An interesting phenomenon can be found in the chart of P500 index. When the VIX index rises rapidly and the index is also in a downward trend, it usually means that the index is not far from the bottom position. On the contrary, when the VIX index has reached a low level and started to turn around, the position of the market index is also in a long track, which indicates that the time for the reversal of the market index in the future is approaching. It is observed that VIX index is a synchronous indicator of buying signal, but it is a reverse indicator of selling signal.
The trend of the stock index has no certain trajectory, but with the help of the technical indicators such as the characteristics of VIX index and the news at that time, the probability of predicting the future trend of the index will be improved, and the operational performance will be improved.
Sometimes we find that VIX index and S&; The trend of the P500 index is not exactly the opposite. Why?
Let's go back to the definition:
The panic index VIX is "S&; The implied volatility of the P500 index in the next 30 days ".
You can get it from S&; The price of P500 index futures options. According to the past trend, the panic index reflects the market's expectation of future stock market "fluctuation" to some extent. Therefore, when the stock market is "plunged" by bad news, the panic index (that is, the expected volatility) will rise rapidly. However, if compared by day, it is impossible for the daily trend of the stock market and the trend of the panic index to correspond completely in the same day, because logically, it is not necessary to correspond completely, so there will be a phenomenon that "sometimes the stock market rises and falls and the trend of the panic index is very different".
Because the stock market and options are not the same market, they are related but not one-to-one correspondence.
Therefore, the panic index can only be used to observe the expected reaction degree of the market (strictly speaking, the option market) to this news or event for reference or when unexpected news or events appear.