VIX

Simply put, VIX is the volatility or “fear” index that measures broad capital market sentiment. This volatility index was created by the Chicago Board of Options to measure the implied volatility of the S&P 500. There’s a simple market mantra ”When the VIX is high, it’s time to buy. When the VIX is low, look out below.” What this means is that when the VIX spikes up, investors are in a panic, and prices are likely falling sharply. As an example, the VIX surpassed 96 in October 2008 which heralded an epic global crash. A contrarian may use this as a time to buy stocks. A low VIX, i.e. below 20, points to a complacent market or an over bullish market, which contrarians may consider an indicator of a future downturn in prices.