The VIX is how people know the Chicago Board Options Exchange Market Volatility Index. As its name suggests, it is an indicator of the volatility, and because of this usage some people call it the fear index or fear gauge.
It is based on the options with S&P 500 stocks as underlying, and it is updated every 15 minutes. Since it is a percentage, its value varies between 0 and 100.
The theory says that a VIX over 30 means that the volatility is high and the market may be anticipating falls, while a VIX under 20 means that market is stable. Others say that only when it is below 15 we can think there is peace in the market. However, typically the market does not follow theories. As a result, some traders say it is better to look at the past weeks or months and look at the levels of “high” and “low” in a more relative way. If it is at the lowest point for the last 6 months, you can consider it low, even if it is above 20.
For example, in 2020, the VIX has been over 20 virtually all the time, so being at 22 could be considered low enough for the last year.
It is possible to invest in the VIX through options, ETFs, and other tools, but its variations are very intense and much more than the S&P 500 index. Therefore, for non-experienced traders, it is usually best to use it as an indicator instead of an investment underlying.
As an indicator, when we see extreme values, we can think that we will face a movement in the opposite direction. Once the VIX is at 9,50 the room, for more falls in the VIX (and thus rises in the stocks) is low, so it seems more likely that we will have a correction.
However, keep in mind that investing based on our decision in just one indicator is not a good idea — not for the VIX and not for any other indicator. Therefore, the VIX can be useful, especially as a sentiment indicator, but you will need to combine it with some other indicators, for which experience and trial and error are the best teachers.
*This article is not investment advice.