Apr 07 2023
What is a CFD? - Contracts for Difference Explained
A CFD (contract for difference) is an agreement between two parties to exchange the price difference between the opening and closing prices of the contract.
By Stefano Treviso , Updated on: Apr 07 2023.
The VIX Index, also known as the "Fear Index," is a measure of expected volatility in the U.S. stock market and is often used as a gauge of investor sentiment and market risk.
The index was first introduced in 1993, and since then, there have been several instances where the VIX has spiked, indicating increased market volatility and uncertainty. Some notable examples include:
These are just a few examples of instances where the VIX has spiked, reflecting increased market uncertainty and volatility. However, it's important to note that the VIX is just one measure of market sentiment and risk, and its fluctuations should be viewed in the context of broader market trends and economic developments.
The VIX is calculated by using a complex formula that takes into account the prices of options on the S&P 500 index. The calculation involves using option prices to estimate the implied volatility of the S&P 500 over the next 30 days.
The Implied volatility is a statistical measure of the expected volatility of an underlying asset's price. It is implied from the price of options contracts that are traded on the asset and represents the market's expectation of the future range of the price movements of the asset.
Implied volatility is an important concept in options trading, as it helps traders determine the prices of options and assess the potential risks and rewards of different options strategies. By comparing the implied volatility of options on a particular asset to historical volatility or to the volatility of other assets, traders can make informed decisions about which options to buy or sell and at what strike prices.
Here's a high-level overview of the steps involved in calculating the VIX:
While most likely we're sure that you're not interesting in learning how to calculate the VIX Index by yourself, it is important to understand that the only objective is
The CBOE Volatility Index, commonly known as the VIX, is a measure of the market's expectation of volatility over the next 30 days. It is calculated based on the prices of options on the S&P 500 index.
A VIX reading of less than 20 is generally considered to indicate a low level of volatility, while a reading above 20 is considered to indicate higher volatility.
Let's image for a second that Russia detonated the first nuclear bomb in the current Ukranian-Russian conflict.
While it's difficult to predict exactly how the VIX index would respond to a hypothetical event such as a nuclear strike by Russia, it's likely that such an event would cause significant market turbulence and volatility, and the VIX index would likely reflect this.
Because the VIX is often used as a gauge of market fear and uncertainty, a major geopolitical event like a nuclear strike would likely cause investors to become more risk-averse, which would lead to increased demand for options that provide protection against market declines. As a result, the VIX index is likely to rise.
Bottom line, catastrophic events, can trigger a price increase on the VIX and the same process of those events weathering down will also trigger a price decrease on the VIX.
Here are some interesting ways to use the VIX index in your favour as a trader:
Now, if you're wondering how to specifically trade the VIX, here are some potential ideas on how to do it:
Bottom line, the VIX Index is considered by many as an insurance against stock market crashes and can definitely be a valuable tool to have for a trader in the event of adverse market scenarios.