VIX (CBOE Volatility Index)
Candlefocus EditorThe VIX is widely used by traders to measure market risk, or the probability of future price movements. It is widely thought to be the most closely watched market index, and is widely used by professional traders and investors. The VIX index is an important tool to help traders understand the level of market risk and make more informed trading decisions.
The VIX is often referred to as the “fear index” because it tends to rise when the stock market falls, and fall when the stock market rises. This is because when stocks fall, investors tend to buy put options, which increases the volatility of the market and pushes the VIX index higher. Conversely, when stocks rise, investors tend to buy call options, which reduces the volatility and pushes the VIX index lower.
While the VIX index provides traders with a valuable gauge of market sentiment, it should not be used as a direct investment tool. Despite the active trading of VIX-based derivatives and exchange-traded products, the VIX is not an asset class, but rather a simple index. As such, it is not a tradable asset and should not be used to make direct investments or trades.
In conclusion, the VIX index is a powerful and widely used market tool for gauging market fear and risk. It is an important tool for traders who want to monitor market sentiment, identify opportunities, and make informed investment decisions. While the VIX is an effective market indicator, it should not be used as a direct investment tool, as it does not represent an asset class in and of itself.