VIX Continues to Drift Ever Lower
The VIX continues to drift ever lower. This signals calm markets. Low readings reflect investor complacency. Expected volatility in the S&P 500 stays subdued. Traders interpret this as risk-on sentiment.
What Is the VIX and How Does It Work
The VIX, or CBOE Volatility Index, is known as the “fear gauge”. It measures implied volatility from S&P 500 options prices. Calculations look 30 days ahead. High VIX shows fear and uncertainty. Low VIX indicates confidence and stability.
Volatility Indicator as a Sentiment Indicator
A drifting lower VIX displays bullish market sentiment. Investors feel safe buying equities. Safe-haven currencies like yen weaken. And volume price analysis (VPA) complements this—low volatility often aligns with steady uptrends and rising volume.
Trading Implications
Low VIX can precede tops if complacency peaks. Watch for sudden spikes as reversals. Quantum indicators on NinjaTrader or TradingView track VIX alongside equities. Anna Coulling’s VPA approach uses it for intermarket context.
Monitor the VIX drift carefully. It reveals sentiment shifts early. Combine with Quantum tools for smarter decisions.
Understanding the VIX: How It’s Constructed and Its Relationship to Options
The VIX, or CBOE Volatility Index, is known as the “fear gauge”. It measures expected market volatility. Traders watch it closely. Spikes signal uncertainty. Low readings show calm. But how is the VIX built? And why options matter?
How the VIX Is Constructed
The VIX calculates implied volatility from S&P 500 index options. It uses a wide range of out-of-the-money puts and calls. Prices reflect market expectations for 30-day volatility. The formula averages these. This creates a forward-looking gauge. No historical data—just current option pricing.
The VIX is cash-settled. It’s not directly tradable. But futures and options on VIX exist for speculation.
The Direct Link to Options
Options prices drive the VIX. High demand for protection (puts) pushes implied volatility up. This raises VIX. Call buying in bull markets keeps it low. Essentially, VIX aggregates option premium data. It shows how much traders pay for hedges.
Volume price analysis (VPA) complements this. High volume in VIX spikes confirms fear. Low volume rallies signal fading concern.
Trading Insights from the volatility index
If it rises above 30 often marks risk-off peaks. Below 20 suggests complacency. Spikes precede reversals in equities. Quantum indicators on NinjaTrader track VIX alongside indices. Trend Monitor aligns sentiment.
Anna Coulling’s VPA approach uses VIX for context. High VIX with volume support warns of downside. Low VIX with divergence hints at tops.
The VIX is constructed from options pricing. It reflects expected volatility clearly. Use it with VPA and Quantum tools for smarter trading decisions.
By Anna Coulling