The VIX can help investors gauge market sentiment as well as volatility to identify investment opportunities. As volatility can often signal negative stock market performance, volatility investments can be used to speculate and hedge risk.
This knowledge can be used to make informed investment decisions. Typically, when the price of VIX is:
0-15: This can indicate a certain amount of optimism in the market as well as very low volatility.
15-25: This can indicate that there is a certain amount of volatility, but nothing extreme.
25-30: This can indicate that there is a certain amount of market turbulence and volatility is increasing.
30 and over: This can indicate that the market is highly volatile and there may be some extreme swings soon.
And because the VIX is an index, it can be tracked as well as traded using a variety of options and exchange-traded products. Investors also have the option to use VIX values to price derivatives.
You cannot purchase the VIX like a stock or bond. Instead, you must purchase instruments that respond to fluctuations of the VIX. Traders can place their hedges through VIX options and futures.
There are also nearly two-dozen volatility exchange-traded products (ETPs) for the VIX. This includes both exchange-traded funds (ETFs) that hold assets and exchange-traded notes (ETNs).