VIX: ‘Love Gauge’ More Than ‘Fear Gauge’
Reel Ken, 13 June 2021
Most investors are unfamiliar with the workings of the S&P VIX Index (VIX), traditionally called the “fear gauge.” Not just the “inner workings” such as how it is calculated, but, the outward characteristics it displays. They perceive the VIX simply as a metric that might help them prepare for market movements. But those that try to make sense of it as a metric aren’t even so sure about that.
These investors dismiss the VIX as an investment mostly because they haven’t taken the time to look it over more closely.
Over the years, I’ve learned to love the VIX… not as some sort of indicator… but as an investment vehicle all by itself. When conditions are right, there are few investments that offer a better risk/reward profile than the VIX.
In this article I hope to point out those conditions, strategies and tactics that enable one to view VIX as a “love gauge.”
But, as with other things in life, before one falls in love, it’s wise to get to know each other a little better.
VIX Characteristics
In my recent article I discussed one characteristic of the VIX… its tendency to “revert to the mean.” I urge readers to review that article in its entirety; however, I’ll bring forth the main points.
Here’s a chart produced by Macrotrends that illustrates the VIX over a 30-year period.
