The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question – “How is the VIX calculated?” The VIX as you commonly know it as potentially the fear index or the volatility index on the S&P is again, a measurement of the 30-day expected volatility in the S&P 500. How do they judge or how do they measure the expected volatility on the S&P? And it’s actually quite simple and it’s quite logical if you actually read the white paper that the CBOE puts out. Again, you can look up CBOE white paper on the VIX and you can read all about it and go through the… I think it’s like 15 or 20 pages of the actual calculations if you want to. But the end result is that they basically take a weighted average of both near and far term put and call options and they weight the value of those contracts and then derive an implied volatility from those values. It’s a little bit of a backwards calculation in the sense that we are solving for implied vo