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Definition

The volatility index (or "VIX" as it is known) is a measure of implied volatility maintained by the Chicago Board Options Exchange (CBOE). The Vix is calculated by totaling the weighted put and call options on the S&P500 index. A high VIX means that the market is more volatile than usual. Usually increased volatility means that investors are more uncertain than usual about where the market will go next. In a consistently rising market volatility tends to decline because investors become more and more confident of the upward trend. The same can apply in a downward trend. Volatility is often an indicator of a change in the direction of the trend. The JSE maintains a volatility index called the SAVI (South African Volatility Index) which is calculated in a very similar manner to the VIX.

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