VIX Index: The metric that anticipates stock market movements

What is the VIX really?

The VIX index is a thermometer that measures how much uncertainty the market expects over the next 30 days regarding the S&P 500, the main indicator of U.S. stocks. Created by the CBOE in 1993, this instrument captures volatility expectations by extracting data from thousands of options traded daily. Unlike a traditional stock index that reflects historical prices, the VIX is forward-looking: it anticipates what will happen, not what has happened.

Its nickname as the “fear indicator” comes from the fact that it rises precisely when investors panic and sell stocks en masse. When it falls, it reflects confidence and relaxation in the financial markets.

The inverse relationship between VIX and stocks: why they rise when everything falls

The mechanics are simple but crucial: while the S&P 500 falls, the VIX rises, and vice versa. This occurs because when stocks decline, investors buy protection through options, which drives up their prices and consequently elevates the VIX.

Conversely, during boom periods where stocks advance without shocks, the VIX remains depressed because no one seeks protection. This negative correlation is so consistent that many managers use it as portfolio hedging: if your stocks drop 5%, a VIX position rises 3% and offsets part of the loss.

How it’s calculated: beyond the formula

The CBOE updates the VIX every 15 seconds using SPX options that expire in the next 23 to 37 days. The methodology balances call and put options to maintain a consistent measure of 30 days of expected volatility.

The important thing: it’s not an arbitrary calculation. It reflects what thousands of participants are willing to pay for protection against drops. If that price goes up, it’s because fear is increasing.

VIX risk scale: how to interpret its values

During the COVID-19 pandemic in 2020, the VIX hit 82.69 points. In 2008, it exceeded 89. These figures mark moments of total market rupture.

VIX in 2025: the geopolitical and macroeconomic context

The year started with a volatile cocktail. Trump’s threatening tariffs, the surprise of DeepSeek’s AI model (which shook tech valuations), and inflation uncertainty created fertile ground for sharp movements.

January 27 was emblematic: the VIX surged 30% in one day, surpassing 19 points. The tech sector was to blame, collapsing after news about Chinese AI competition. Investors, who had been heavily betting on U.S. big tech, suddenly panicked. Massive sell-offs ensued, contagion spread to other stocks, and volatility went wild.

What was striking was the speed of recovery. Hours later, the VIX was under control. UBS analysts attributed this to automatic rebalancing: many algorithms and funds acted simultaneously, causing a brutal spike in volatility first, then a quick containment.

Why investors buy and sell VIX derivatives

Defensive strategy: it’s insurance. You invest in VIX futures or ETFs when you expect a correction in stocks. If the S&P 500 drops 10%, your VIX position rises and absorbs part of the blow. Conservative profile, goal: sleep peacefully.

Offensive strategy: pure speculation. Betting via CFDs or options that volatility will rise because you expect a crisis event (elections, central bank decisions, trade wars). If you’re right, gains are amplified. If you’re wrong, losses are of the same magnitude.

During COVID-19, speculators who bought VIX in March achieved extraordinary returns. The fear index was their most profitable asset when everything else was collapsing.

How the VIX options portfolio works

Unlike the S&P 500, which is a fixed basket of 500 large stocks, the VIX is recalculated constantly. Its options portfolio changes every minute to maintain exactly 30 days to expiration.

This means the VIX never “ages”: it always looks at the same time horizon. If someone wants to replicate the index manually, they would need to rebalance their options continuously, which is practically impossible for retail investors. That’s why access to the VIX is only through derivatives: futures, ETFs, CFDs.

Technical analysis of the VIX today

Resistance at 20-22 points: this range has repeatedly acted as a ceiling. If the VIX breaks through convincingly, it signals upcoming episodes of serious volatility.

Support at 15-16 points: when it drops near here, it finds a floor. Suggests the market perceives relatively low risk.

Moving averages: the 50-day is above the 200-day, which some interpret as short-term strength. The RSI hovered around 65 after January peaks, territory of overbought conditions.

MACD: in positive territory but with signs of narrowing, which could signal a reversal soon, though nothing is certain.

Possible scenarios for the VIX for the rest of 2025

Bullish scenario (VIX rises): Trump escalates trade wars, inflation persists, the Fed tightens monetary policy, or a geopolitical “black swan” emerges. In this case, the VIX could reach levels similar to 2020 (close to 40-50).

Neutral scenario: tensions do not escalate, inflation stabilizes, the Fed pauses rate cuts. The VIX fluctuates between 15-20 without major shocks, typical of “wait and see” markets.

**Bullish scenario (VIX falls): ** Trump negotiates, inflation drops further, the Fed cuts rates, no shocks occur. The VIX normalizes between 10-15, reflecting calm markets and stocks on autopilot upward.

The key point: although the VIX is calculated based on the S&P 500, its effect is global. A spike in New York frightens investors in Tokyo, London, and São Paulo equally, triggering cascading capital outflows.

Brief history: from the lab to Wall Street

It all began in the late 1980s when academics like Menachem Brenner and Dan Galai proposed creating a volatility index that would mirror markets, just as the S&P 500 reflects stock prices.

The CBOE hired Bob Whaley in 1992 to calculate historical VIX values using options data from 1986, and it was launched to the public in 1993. Since then, it has been refined (the methodology was improved in 2003 with better computational power), but the concept remains the same: capturing fear in numbers.

The 2008 crisis catapulted it to fame. The VIX closed at a maximum of 89.53 points. COVID-19 pushed it to 82.69. These are moments when the indicator shines, showing what investors truly feel.

Accessing the VIX: available options

The VIX is not bought directly. There is no “volatility basket” you can acquire like an S&P 500 index fund. The only ways are:

VIX futures: contracts traded on the CBOE. You commit to buying or selling volatility at 30 days at an agreed price today. They are leveraged, profitable but dangerous.

Volatility ETFs: funds that replicate the VIX or its futures. Less direct than futures but more accessible for retail.

VIX CFDs: offered by retail brokers, allowing leveraged trading. High risk, high reward potential.

VIX options: derivatives of derivatives. For advanced traders wanting to build complex structures.

Best practices for VIX traders

1. Don’t use all your capital on one position: VIX is volatile by definition. A position that gives you a 5% gain today can lose 15% tomorrow.

2. Understand the S&P 500 first: you can’t predict fear without understanding what’s causing it. Study the companies in the index, Fed decisions, geopolitical context.

3. Use as hedging, not as a main bet: for most investors, VIX is for protecting stock portfolios, not for making fortunes speculating on it.

4. Monitor macro events: every Trump statement, inflation data, technological surprise can move the VIX 20% in hours. You must stay informed.

5. Never invest more than you can afford to lose: VIX derivatives can wipe out accounts. It’s a powerful but treacherous tool.

Conclusions: VIX as a market compass

The VIX is the most honest indicator there is: it reflects pure fear and uncertainty without filters. While the S&P 500 rises with narratives of future earnings, the VIX screams the uncomfortable truth: “something doesn’t add up here.”

For traditional stock investors, understanding the VIX means knowing when their portfolios are at real risk. For speculative traders, it’s the boundary between extraordinary gains and ruin.

In 2025, with Trump in the White House, Chinese AI surprising the market, and central banks navigating inflation, the VIX will remain relevant. It may not reach all-time highs, but it won’t disappear either. It will be the compass indicating where fear truly resides in the U.S. stock markets and, by extension, in the world.