What is the VIX?

I love my dogs, don’t get me wrong, but wow, I wish they appreciated hitting the snooze button more. They have no respect for the weekend.

The CBOE Volatility Index (VIX), commonly called the “fear index,” is a number that estimates how wildly the S&P 500 might swing over the next 30 days. When the VIX is high, it usually means investors expect a bumpy ride, possibly even a crash. So, where does this magical number come from?

Let’s start with the basics. CBOE stands for the Chicago Board Options Exchange. It’s the entity that created and calculates the VIX. If you ever meet someone who works at the CBOE, run. Why? Because this is the formula they came up with:

It’s not math. It’s not English. It’s madness.

Their table of contents tries to calm you down by claiming it’s a simple “three-step” process:

But they forgot Step 0: Get a PhD in Greek letters and black magic.

Back to the point. The VIX is based on prices of S&P 500 options, specifically, options expiring in the next 23 to 37 days. The logic: if option prices are high, traders must think big moves are coming.

• If call options (bets that the market will go up) are expensive compared to puts → VIX tends to be low (around 10–15).

• If calls and puts are priced similarly → VIX hovers around 20.

• If put options (bets that the market will go down) are expensive compared to calls → VIX jumps to 30+.

This makes sense. When investors get nervous, they start buying puts to protect their portfolios. That surge in demand drives up prices — and so the VIX rises.

But remember: the VIX doesn’t predict the future. It reflects what option traders are willing to pay right now for protection in the near future. So while it’s not predictive, it does give insight into how worried the market is about what’s next.

Now for the crazy part: you can trade the VIX, or rather, you can bet on where it’ll go. Since the VIX itself is just a formula, you can’t buy it directly. But you can buy VIX futures, which are cash-settled contracts that let you bet on where the VIX will be at a future date.

Let me translate: two people place bets on how scared everyone will be in a month. Whoever guesses closer gets paid the difference in cash. That’s Wall Street. That’s allowed. That’s considered an “investment.”

Please, for the love of everything good and holy, don’t buy VIX-related products. Don’t touch them with a 39 ½ foot pole. These instruments are for pros who live and breathe derivatives. Not you. Not me. Not your cousin Chad who bought Dogecoin.

But now that you know what the VIX is, you’ll understand what it means when it flashes across the news. When it’s low, the market feels chill. When it spikes, things are getting weird.

Debrief on Deck

Next week is June’s Monthly Market Debrief. I don’t know how that’s possible. The summer solstice has already passed. The days are getting shorter. Holy cow.

As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on Instagram.

Until then, stay the course.

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