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The Chicago Board Options Exchange (CBOE) developed an index which measures the near term (next 30 days) expected volatility of S&P 500 Index options trading.
The CBOE Volatility Index or VIX as it is commonly referred to, is often seen as the best guage of fear and uncertainty in the market. The index reflect investors' consensus view of future expected stock market volatility.
During periods of financial stress, which are often accompanied by steep market declines, option prices and the VIX tend to rise. The greater the fear, the higher the VIX level.
As investor fear subsides, option prices tend to decline, which in turn causes VIX to decline.
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