Volatility measures the frequency and magnitude of price movements, both up and down, that a financial instrument experiences over a certain period of time. The more dramatic the price swings in that instrument, the higher the level of volatility. Volatility can be measured using actual historical price changes (realized volatility) or it can be a measure of expected future volatility that is implied by option prices. The VIX Index is a measure of expected future volatility.

VIX Index, the first benchmark index to measure the market’s expectation of future volatility. The VIX Index is based on options of the Primary Index, considered the leading indicator of the broad stock market. The VIX Index is recognized as the world’s premier gauge of equity market volatility.

The VIX Index estimates expected volatility by aggregating the weighted prices of Index puts and calls over a wide range of strike prices. Specifically, the prices used to calculate VIX Index values are midpoints of real-time option bid/ask price quotations.

The VIX Index is used as a barometer for market uncertainty, providing market participants and observers with a measure of constant, 30-day expected volatility of the broad stock market. The VIX Index is not directly tradable, but the VIX methodology provides a script for replicating volatility exposure with a portfolio of options, a key innovation that led to the creation of tradable VIX futures and options.