A real-time volatility index created by the CBOE, one of the most influential stock exchanges in the world, the VIX calculates the implied volatility of the options (calls and puts) on the US S&P 500 index, proposing forecasts on the fluctuations of the stock market in the following 30 days.
The correlation between the VIX and the S&P 500 index is typically negative, which implies that if the S&P 500 goes down, the VIX goes up, and vice versa.
The higher the VIX, the higher the percentage of any risks present on the market, for this reason in financial jargon it has been given the nickname “index of fear”.
Implied volatility is one of the main factors influencing the price formation of a given option, such as the Black-Scholes method (which is calculated based on various factors such as the value of the underlying, strike price, interest rate).
For this reason, the higher this variable is, the higher the option premium will be, clearly affecting the earning possibilities.
Implied volatility reveals market analyzes of the volatility of the underlyings. Normally the implied volatility values increase with the change in the price of the underlying, and consequently the prices of the options increase. Virtually higher implied volatility mirrors an increase in the price of options. Considered extremely important by traders because an increase in the VIX index occurs in periods of greater uncertainty.
The VIX index is calculated using real-time S&P 500 contract prices, including CBOE SPX options (expiring on the third Friday of the month), and weekly CBOE SPX contracts (expiring weekly on Fridays). In order to be considered eligible and included in the VIX index, any option must have an expiration date that varies between 23 and 37 days.
The actual mathematical calculation that allows you to go back to the VIX is extremely complex, but the traders who usually carry out their trading operations on this index do not need to know it perfectly. In principle it can be said that the basis for the calculation of the index is based on the combination of prices of a series of put and call options of the S&P 500, an extensive list of strike prices that clearly indicate the buy and sell prices used. by investors to trade on the index. In summary, the final values resulting from this calculation estimate the future volatility of the S&P 500 Index.
ECN (acronym for Electronic Communication Network) is an electronic system that offers the possibility to electronically “weave” both purchase and sale orders with the aim of executing them. This system offers traders direct access to liquidity providers in Non-Dealing-Desk mode, extremely useful for investors who usually invest large volumes and consequently need low spreads and fixed commissions.
SuperForex offers various types of ECN accounts, each one of which is designed to meet the needs of any trader.