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The VIX, or Volatility Index, was created by the Chicago Board Options Exchange (CBOE) in 1993. It's commonly nicknamed the 'Fear Index,' and for good reason. By measuring short-term S&P 500 options prices, the VIX essentially determines how fearful investors may be about market price swings on the horizon. If investors are generally more worried about big price swings, options contracts get more expensive and the VIX rises in tandem. When investors are calmer, the opposite happens – options get cheaper and the VIX declines.

Vol-mageddon

In February of this year, a massive volatility-based event that some have referred to as Vol-mageddon crushed many investors and some funds. ETFs/ETNs based on VIX movement, including VXX, UVXY (leveraged VIX), and SVXY (inverse VIX), made huge price moves when market volatility spiked. These volatility vehicles are still traded heavily now, as the VIX itself cannot be directly traded.

Persistent VIX Elevation

The VIX chart above shows the monster February spike. But perhaps more importantly right now, the chart shows persistently high VIX levels in the past two months when compared with historical averages. As shown on the chart, the VIX began its most recent elevation in early October, right about when the S&P 500 began its latest plummet from record highs. Since that time, the VIX has remained heightened above its 200-day moving average, which has steadily fluctuated around the 16 level. In fact, the VIX has used the moving average on two recent occasions to bounce, right when markets seemed to be calming down a bit.

VIX levels typically return rather swiftly back to the mean (down, in this case). But as long as investors fear an extended market correction, or even an impending bear market, the VIX will likely remain uncharacteristically elevated.