In a general sense, VIX refers to a ticker symbol that has something to do with the CBOE or the Chicago Board Options Exchange Volatility Index. This is actually a financial tool that is being used by many people in order to show the market’s 30-day volatility expectation. This was actually constructed or formed by using the various implied volatilities of different S&P500 index. As expected and in accordance to how it used to be, it is calculated using both calls and puts. In other words, VIX is a measurement of the market risk. Hence, this is the reason why lots of investors refer to this as the “investor fear gauge.” Alternatively, this can also be interpreted as a dashboard of the mood of the market.
However, there have been various concerns about the movements of the VIX recently. This is because more and more people are asking if the VIX exchange traded notes or ETNs as well as the other VIX-related funds are influencing or affecting the VIX futures curve. Aside from that, there were also some concerns about the VIX trading impacting the much wider surfaces of volatility due to its popularity.
These concerns have been answered by various economists and financial analyst by saying that it is possible. However, the challenge is more on the corroboration of the theory and the hard evidence. Well, it is a great challenge because it is not that easy at all.
Proving this, there are already increasing pieces of evidence suggesting that the single stock volatility is already being driven by the index volatility. But, the best imprint for this would be from the exchange market when it comes to rolling the VIX futures contracts. In support of this, it has also been noted by many analysts that the average daily Vega volume of the VIX and related derivatives has actually been greater than the average volume of SPX options market. Nevertheless, while all of these happen in the market, it must always be remembered that there are more than enough mechanisms in the options market that will assure that VIX values can never be manipulated so far.