Also known as the fear index, or fear gauge, VIX is a measure of the implied volatility of S&P 500 index options and represents expectations of market stock volatility in the next 30 days.
The VIX was first introduced by Professor Robert Whaley in 1993 as an index that basically forecasts what kind of volatility can be expected in the next 30-day period. For example, if the VIX is 5%, it is expected that the market will go up or down 5%.Thus the higher the number, the greater chance of price fluctuation. The term “fear” index should not mean that the higher the VIX the more bearish the market. It is non-directional.
The methodology has evolved since 1993, and in 2003 the underlying index changed from CBOE S&P 100Index (OEX) to the CBOE S&P 500 Index (SPX). In 2004, the Chicago Board Options Exchange opened up trading on VIX-based derivative instruments ie. VIX futures, VIX options etc. During the
Source:
http://en.wikipedia.org/wiki/VIX
Here’s a VIX chart from Yahoo Finance from inception to 3/18/2011: Note the peak during the financial crisis where the market became extremely volatile.
Bloomberg has a nice VIX historical chart as well: http://www.bloomberg.com/apps/quote?ticker=VIX:IND
