The exchange takes a sample basket of options and calculates their average as if that they had thirty calendar days left until expiration. There are other, related indexes. as an example , there’s the VXO index, also called the “old VIX,” because it’s calculated an equivalent because it wont to be, on the NASDAQ 100 Index. There’s also VXN, which is that the volatility measure supported the NASDAQ 100 Index options, which is analogous to the QQV supported the choices of the NASDAQ 100 Index Tracking Stock (QQQ).
It tends to rise when stock exchange prices are declining. That’s because some people, when scared of a falling market, buy puts as “portfolio insurance.” people are interested in options to undertake to require advantage of the ups and downs. And when implied volatility goes up, so does the cash received from selling calls and puts. Bear markets cause a rise in fear and uncertainty, causing people to shop for and sell for more emotional reasons. It’s therefore been referred to as the “fear index.” During a market , however, there’s more confidence (leading to greed), causing less use of options and thus a decline. Traditionally, the 2 extremes are at 20 and 35. A reading of 20 is sort of low, indicating an extreme of bullishness. A measure of 35 is sort of high, indicating an extreme of fear and bearishness.
Traders have attended use it as a contrarian signal, therefore. When it’s historically low, the market must be on the brink of its high and, therefore, it is time to sell. When it’s historically high, the market must be on the brink of its low and, therefore, it is time to shop for. However, changes in market direction don’t come immediately, so it’s not an honest timing signal. You must also confine mind that, mathematically, volatility can mean price rises even as very much like price drops. During a market call option sellers should demand a better premium visit http://www.nas100brokers.com/volatility75index.html and see driving up implied volatility. Therefore, in theory anyway, a high VIX75 also can mean a market , especially an extreme one.