Volatility Trading

U.S. equity market volatility can be traded like an asset class. Learn more about the Cboe Volatility Index^® and how market participants can use Mini-VIX futures as a tool for risk management or to express their view on the future direction of equity market volatility.

Mini VIX futures are complicated financial products that are suitable only for sophisticated market participants. Before trading Mini-VIX futures it is important to understand the complexity and associated risks, which are fully described at www.cboe.com/minivix. Please read carefully before investing.

What Is the VIX Index and How Is it Calculated?

Cboe Global Markets revolutionized investing with the creation of the Cboe Volatility Index^® (VIX^® Index), the first benchmark index to measure the market's expectation of future volatility. The VIX Index is based on S&P 500^® Index options, considered the leading indicator of the broad U.S. stock market. The VIX Index is recognized as the world's premier gauge of U.S. equity market volatility.

The VIX Index estimates expected volatility by aggregating the weighted prices of S&P 500 Index (SPX^℠) puts and calls over a wide range of strike prices. Specifically, the prices used to calculate VIX Index values are midpoints of real-time SPX option bid/ask price quotations.

What the VIX Index Tells Us About the S&P 500 Index

Use this tool to see the market's expected range of the S&P 500 over the next 30 days. This tool allows you to see the S&P 500 Index range in three different ways:

The default view shows the next 30 days based on the current levels of the VIX Index and S&P 500 Index, or use the Reset Value button to update with the most recent market information
Select a Historical Event to view the past relationship between the VIX Index and the S&P 500 Index
Enter your own values for either the VIX Index Level or S&P 500 Index Level to display the expected range of the S&P 500 Index over the next 30 days

*Represents an all-time closing high. ** Represents an all-time intraday high. The VIX Interactive Calculator is an educational tool intended to assist individuals in learning [how the levels of the and S&P 500 Index will change base upon user inputs. It is not intended to provide investment advice, and users of the VIX Interactive Calculator should not make investment decisions based upon values generated by it. Your use of the VIX Interactive Calculator is subject to the Terms and Conditions of Cboe's Websites

Like all indices, the VIX Index is a measurement tool. It's a calculation that's designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market.

The VIX Index is expressed as an expected annualized standard deviation. As such, the VIX Index is a non-directional (up or down) forecast based on the implied prices of one-month SPX option strips. This information can be used to inform one's understanding of the magnitude of potential market movements and possibly the impact of such moves on one's portfolio.

Like other forecasts, these estimates can change quickly, which presents both opportunity and risk. The VIX represents the S&P 500 index +/- percentage move, annualized for one standard deviation. For example, if the VIX Index is currently at 16 that means based on the option premiums in the S&P 500 Index, the S&P is expected to stay with in a +/- 16% range over 1 year, 68% of the time (which represents one standard deviation).

How the VIX Index Moves

The VIX Index has unique characteristics and behaves differently than other financial-based commodity or equity indices. Understanding these traits and their implications is important and may allow for unique investing strategies and oppportunties.

Inverse Relationship with the S&P 500

Generally, the VIX Index tends to have an inverse relationship with the S&P 500 Index. Expected volatility typically increases when markets are turbulent. In contrast, if stock prices are rising the VIX Index generally tends to fall or remain steady. But as you can see, this may not always hold true.

Takeaway: The inverse correlation of the VIX Index makes tradeable VIX futures and options contracts potentially attractive tools to manage or hedge risk.

Mean-Reverting

As a volatility indicator, the VIX Index generally tends to be mean reverting. Unlike equity indices that can rise indefinitely, the VIX Index, over time, will generally return or move back to its historical average. Volatility cannot move higher in perpetuity. It also cannot move to zero, which is distinct from equity prices.

Takeaway: VIX options and futures should not be used as long-term, buy-and-hold investments.

The Volatility of the VIX Index

Generally speaking, the VIX Index has been significantly more volatile than the S&P 500 Index. Since its inception in 1990, the VIX Index has had a standard deviation of approximately 6.9%, which is 5 times higher than the S&P 500 Index over the same time period.

Takeaway: The VIX Index is generally expected to have bigger and more rapid swings than the S&P 500 Index. Depending on your trading strategy, this may be a benefit or a risk.

Mini VIX Futures

At 1/10th the size of the standard VIX futures contract, Mini VIX futures allow market participants to trade or hedge equity market volatility or execute volatility strategies with a more manageably sized contract.

Learn More

Before you trade Mini VIX futures, it's important to understand the following:

Mini VIX futures are complicated financial products that are suitable only for sophisticated market participants.
Mini VIX futures involve the risk of loss, which can be substantial and can exceed the amount of money deposited for the futures position.
Market participants should put at risk only funds that they can afford to lose without affecting their lifestyles.
Before transacting in Mini VIX futures, market participants should fully inform themselves about the characteristics and risks of Mini VIX futures, including in particular those described at www.cboe.com/minivix. Mini VIX futures market participants also should make sure they understand the product specifications and the methodologies for calculating the underlying VIX^® Index and the settlement values for Mini VIX futures.

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Futures trading is not suitable for all investors, and involves the risk of loss. The risk of loss in futures can be substantial and can exceed the amount of money deposited for a futures position. You should, therefore, carefully consider whether futures trading is suitable for you in light of your circumstances and financial resources. For additional information regarding futures trading risks, see the Risk Disclosure Statement set forth in the Risk Disclosure Statement set forth in Appendix A to CFTC Regulation 1.55(c) and the Risk Disclosure Statement for Security Futures Contracts.

It is important for market participants to understand the following before trading Mini VIX futures on Cboe Futures Exchange: Mini VIX futures are complicated financial products that are suitable only for sophisticated market participants. Mini VIX futures involve the risk of loss, which can be substantial and can exceed the amount of money deposited for the futures position. Market participants should put at risk only funds that they can afford to lose without affecting their lifestyles. Before transacting in Mini VIX futures, market participants should fully inform themselves about the characteristics and risks of Mini VIX futures, including in particular those described at www.Cboe.com/MiniVIX. Mini VIX futures market participants also should make sure they understand the product specifications and the methodologies for calculating the underlying VIX Index and the settlement values for Mini VIX futures.

Past performance is not indicative of future results. The information in this article is provided for general education and information purposes only. No statement(s) within this article should be construed as a recommendation to buy or sell a security or future or to provide investment advice. Supporting documentation for any claims, comparisons, statistics or other technical data in this article is available by contacting Cboe Global Markets at cboe.com/contact.