The CBOE Volatility Index

Calculation methodology

The VIX is calculated using a wide strip of out-of-the-money S&P 500 (SPX) options across two near-term expiries. The formula aggregates the prices of puts and calls to produce a single implied volatility number expressed as an annualized percentage. The 2003 redesign moved from the original eight-option model to this broader, model-free approach.

Historical context

• 1993 — Original VIX introduced by Prof. Robert Whaley, based on S&P 100 (OEX) options.
• 2003 — CBOE redesigns VIX to use S&P 500 options and a model-free methodology. Old index renamed VXO.
• 2004 — VIX futures begin trading on CBOE Futures Exchange (CFE).
• 2006 — VIX options launch, rapidly becoming one of the most active options contracts globally.
• 2018 — Volmageddon: XIV and related inverse volatility products collapse as VIX spikes past 50.

What the number means

A VIX of 20 implies the market expects the S&P 500 to move roughly ±5.8% over the next 30 days (20 ÷ √12 ≈ 5.8%). The number is not a prediction of direction — it is a measure of the expected magnitude of movement, priced through supply and demand for options.

VIX levels in context

• Below 15 — Calm markets, low hedging demand, steep contango in futures.
• 15–20 — Normal range, moderate risk awareness.
• 20–30 — Elevated risk, often during earnings season or geopolitical stress.
• 30–40 — High stress, significant hedging activity.
• Above 40 — Crisis levels (2008, 2020, select events). Regime is firmly in panic.

Monitoring with TheVIXtrader

TheVIXtrader transforms the raw VIX number into actionable intelligence by adding regime classification, term structure context, and realized-vs-implied comparison. Instead of watching a number, you read a briefing that tells you what the number means today.