VIX (volatility index).

In plain English

The VIX is calculated from the prices of options on a broad U.S. equity index and expresses the market's implied volatility over the coming month, stated on an annualized basis. It rises when option buyers pay more for protection, which usually happens when prices are falling and uncertainty is high. It estimates the size of future moves, not their direction, so a high reading says the market expects large swings rather than a decline. You cannot buy the index itself, and exposure comes through futures and other products whose behavior differs from the index because of roll effects. Cboe publishes the methodology, and the current level always comes from the exchange.

01Why it matters

A spiking VIX tells you protection has become expensive and that the market expects bigger moves, which is context for a headline that only says stocks fell.

02The math, step by step

Say the VIX reads 20. That implies a one standard deviation move of about 20 percent over a year. Scaled to one month, it is roughly 20 divided by the square root of 12, about 5.8 percent.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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