Volatility Index (VIX)
The Volatility Index(VIX) implies volatility on the S&P 100(OEX) option. This type of volatility is meant to be a forward looking volatility. As a popular measure of market risk, the VIX is calculated from both calls and puts that are near the money. It is said that “when the VIX is high, it’s time to buy.” Historically with the VIX, when the volatility of the markets jump and then begin to subside, stocks will jump. If you buy Stocks when the VIX is high, you’re taking the risk that the uncertainty of the markets will pass and stocks will rise again. Throughout its history the VIX has proven this theory. Keep in mind however that when the VIX is low does not necessarily mean its time “to go.” InvestmentU.com has a historical chart of the VIX.