Article by: Matt Larsen
Published by: Futures Magazine
Date: Sep 2004
“Volatility can make or break a trader. Learning how to read this important market statistic can give you a real edge. Here’s how to incorporate the Volatility Index, or Vix, into your trading approach.
“The Volatility Index (Vix) is a useful tool in accurately reflecting upcoming changes in the intermediate trend. Unfortunately, most traders do not understand how to implement this tool successfully. This article takes a common sense approach toward successfully using the Vix to add to your bottom line.
“The Vix measures market volatility and is often referred to as the “investor fear gauge.” It works because it is inversely correlated, meaning as the S&P 500 moves down in price, the Vix (generally) moves higher. Without spending time on the academics of it, the equation for the Vix calculates volatility by averaging weighted prices of out-of-the-money put and call options.”
Full article: Link