Investors rely on many factors to help them make financial choices, says Douglas Battista. One of these is the CBOE Market Volatility Index (VIX), which is often simply referred to as the “fear gauge.” But what is it and how does it guide an investor’s decisions?
Q: What is the CBOE Market Volatility Index?
Douglas Battista: The VIX is simply a number that investors look at to determine the possible ups and downs of the stock market. You can think of it as a roller coaster where you can only see half of the ride. By looking at what the track has done, you can make a guess as to how the rest of the coaster looks. Of course, it is more complex than than that, and involves lots of precise calculations but the index is a tool investors can use to prepare for either a bumpy or smooth ride so to speak.