## VIX: The Fear Gauge Every Investor Should Monitor in 2025

If you invest in stocks, you need to understand what VIX is and how it works. This S&P 500 volatility index has become an essential tool for managing risk in portfolios, especially in such a turbulent year as 2025. The VIX index measures market expectations of short-term price changes (30 days) for the S&P 500, and its behavior directly reflects investor nervousness.

## Why is VIX key for stock investors?

The relationship between VIX and stocks is inversely proportional: when the S&P 500 falls, the VIX rises, and vice versa. This happens because increased volatility generates greater risk aversion among investors, causing massive sell-offs of stocks and declines in their prices. Conversely, when volatility decreases, investors gain confidence and resume buying stocks.

During 2025, VIX has shown sharp movements that have surprised many traders. On January 27, the index surged 30% in a single day, surpassing 19 points after DeepSeek's AI model announcement. The reason: global investors began questioning whether U.S. tech companies would truly meet the profitability expectations that had justified their extreme valuations. This crisis of confidence dragged down the entire market.

## Understanding VIX behavior in stock markets

The VIX index was created by the Chicago Board Options Exchange (CBOE) in 1993 and is calculated in real time using S&P 500 options prices. Its operation is relatively simple: the greater the uncertainty about future stock prices, the higher the VIX value.

Risk levels according to VIX are as follows:

- **0-15 points:** Low risk (calm market)
- **15-20 points:** Moderate risk
- **20-25 points:** Medium risk
- **25-30 points:** High risk
- **+30 points:** Very high risk (market panic)

During the 2008 financial crisis, VIX reached an intraday maximum of 89.53 points. In 2020, with the COVID-19 pandemic, it jumped from 57.83 to 82.69 points in a single day. These extremes show how the index captures collective panic when the stock market collapses.

## Volatility vs. stability: what does each VIX movement mean?

Volatility is simply a statistical measure of how much prices fluctuate. Low volatility suggests stock prices remain relatively stable, while high volatility indicates sharp and unpredictable changes. VIX translates that volatility into a number investors can understand and act upon.

When VIX rises, some investors see it as an opportunity to buy stocks at low prices (contrarian view), while others take advantage to sell and protect themselves. When it falls, most interpret it as a sign to increase exposure to the equity market.

## Factors driving volatility in 2025

Three main elements have shaken markets this year:

**Trade policy:** Measures by Donald Trump, including threats of tariffs on China and the EU, have reignited uncertainty. Every presidential statement can trigger volatility spikes in stocks.

**Technological competition:** The unexpected rise of DeepSeek as an AI competitor questioned whether U.S. tech giants would maintain their dominance. This caused aggressive corrections in the sector.

**Macroeconomic dynamics:** Inflation, Federal Reserve interest rate decisions, and Treasury bond yields remain critical factors moving the VIX.

Additionally, trading algorithms amplify these movements. When many funds rush to sell or buy simultaneously, they generate violent volatility spikes that are quickly corrected afterward.

## Strategies for trading VIX if you invest in stocks

There are two main approaches:

**Portfolio protection:** If your portfolio is heavily exposed to the S&P 500, you can use VIX derivatives as insurance. When stocks fall, VIX rises and offsets part of your losses. This is a defensive strategy.

**Speculation:** Risk-tolerant investors can buy VIX futures or volatility ETFs during uncertain times, aiming for quick gains from sharp movements.

During the pandemic, many traders made significant money using the second strategy. In 2025, with so much political and trade instability, both strategies have potential.

## How to invest in VIX? Available options

You cannot buy VIX directly like a stock. You need to access it through derivatives:

- **VIX futures:** Contracts that allow you to bet on the future value of the index
- **ETFs and ETNs:** Exchange-traded funds that replicate VIX behavior
- **VIX CFDs:** Contracts for difference that minimize capital requirements

With futures, when you expect VIX to rise (because you anticipate future volatility), you go long. When you expect it to fall (stable market), you go short.

## Current technical analysis of VIX

Looking at the charts, VIX has found resistance between 20 and 22 points. If it convincingly breaks those levels, it could signal a stronger volatility episode. Support is around 15-16 points, where the market seems to find some calm.

The 50-day moving average is above the 200-day, suggesting short-term strength. The RSI hovers around 65, indicating overbought conditions if the bullish trend continues. The MACD is in positive territory but with lines narrowing, which could foretell a trend reversal.

## Possible scenarios for VIX for the rest of 2025

Everything depends on how conflicts like Trump's trade tensions, inflation, and Fed decisions evolve:

- **Optimistic scenario:** If tensions ease, inflation moderates, and rates fall, VIX should gradually decline toward 12-15 points.

- **Neutral scenario:** Trade tensions persist but do not escalate, VIX fluctuates between 15-22 without major shocks.

- **Pessimistic scenario:** If everything goes wrong (tariffs, high inflation, rate hikes), VIX could reach 2020 levels (around 40-50 points).

Remember that although VIX is based on the S&P 500, its influence is global. When investors in New York get scared, capital flows out of stocks in Europe, Asia, and Latin America.

## Final recommendations for investors

VIX is a valuable tool if you invest in stocks, but it should not be your only indicator. Consider it as a complement to your fundamental and technical analysis of the S&P 500. Its 30-day volatility predictions are useful but not foolproof.

If you trade VIX derivatives aiming for quick gains, keep in mind that the risk is high. Movements can be as rapid as they are violent. Conversely, if you use it as defensive coverage in your stock portfolio, consider it a valid insurance policy.

Whatever your strategy, stay informed about the global macroeconomic context, the behavior of S&P 500 stocks, and of course, the current level of VIX. In finance, everything is connected, and numbers never lie.