Unit 1 · Level 3 · Risk-on / risk-off
The VIX & fear gauges
The VIX distills S&P 500 option prices into one number: how wild traders expect the next ~30 days to be. It usually idles around 15-20, and spiked to roughly 80 in 2008 and again in March 2020. You met it in the Trading course, and crypto has a cousin called DVOL. One thing it never tells you: direction. It prices turbulence, not destination.
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What you get asked
The VIX measures…
It's built from S&P 500 option prices: when traders pay more for protection, expected volatility rises, and so does the VIX.
In March 2020 the VIX hit roughly 80 versus a normal 15-20. That signalled:
A VIX near 80 means option buyers were pricing in enormous swings: the panic levels seen in 2008 and the Covid crash. Fear pricing, not a prophecy.
Match the reading to what it says about the market's mood
Reading fear gauges is regime detection: the same headline lands differently at VIX 12 than at VIX 40.
The VIX is computed from the prices of S&P 500 ___.
Options are insurance against big moves, so their prices reveal how much turbulence traders expect. Money talks louder than surveys.
Does a high VIX tell you which WAY the market will move?
A high VIX says 'expect big swings.' Some of the biggest one-day RALLIES in history happened at panic-level VIX. Turbulence, not destination. 🐜
The rest of this unit
Markets have two moods. Learn what rallies, what hides, and how fast the switch flips.