The VIX is the stock symbol that is being used in order to refer to the Volatility Index of the Chicago Board Options Exchange Market. This is one of the most popular measures that specifically imply the volatility of the instrument S&P500 index options. In most cases, this is also commonly referred as the fear index or gauge by many investors who are engaged in Contracts for Difference or CFD trading and spread betting. Furthermore, in a general sense, what this instrument represents is the measurement of the expectation of the market to the volatility of the stock market over the next month or 30 days.
In this kind of trading in the world of CFD trading, the CFD providers allow the investors to take VIX futures position. By doing this, it gives the investors a reliable tool for hedging, which means minimizing or reducing the risks of the adverse movements of the price level of the asset or the instrument being traded.
This fear index is technically driven by the options trading. This is also quoted or calculated in percentage points. As stated, its measurement is on the expected price changes of the S&P500 in the next month. However, instead of measuring this instrument through the shares volatility, the fear index is measuring the options market, whether the call options prices or the put options prices. For example, as expectedly in the world of spread betting and CFD trading, when the banks start to see some signs that the markets are going down, their common reaction would be to mitigate the possible risks by buying some up options. Of course, if the expected and project swings in the prices are higher, then the premiums being charged by the writers of these options would be higher as well.
When it comes to the range of the trend of the VIX or the fear index, it usually plays around the areas of 15 to 16 per cent. However, when there is turbulence in the market, the most probable scenario is that it will go beyond that range. As a matter of fact, when the Libyan invasion as well as the turmoil in the Middle East and Africa happened, the VIX went as high as 30 per cent. It spiked again when the United States debt stalemate happened. Aside from that, since the Euro zone countries are having some financial problems right now, expect the VIX to be abnormal as well, which will surely affect investors engaged in both CFD trading and spread betting.