Is The Fear Gone?

The VIX, or “fear index” represents the market’s expectation of 30-day volatility.  It is forward looking and is constructed using the implied volatilities of a wide range of S&P 500 index options.  In general, option premiums move inversely to the market, meaning that when the market rises, VIX decreases and premiums decrease.  When the market falls, VIX usually increases and premiums increase.

Today, we saw a huge rally in the market after yesterday’s late day sell-off.  But, the VIX only decreased minimally.  What does that tell us?  Well, there is definitely some “fear” in the market and investors are willing to pay higher premiums to protect positions.