A little known “fear index” that measures volatility in stock prices over 30 days has risen to prominence—and to off-the-charts numbers—as traders try to predict the market’s big swings, reports the New York Times. When the VIX climbs, it’s a sign market action is about to head in a different direction, often down, and points to a market controlled by fear, not greed.
The VIX closed at 70.33, its highest point since its inception in 1993, on Friday, indicating that S&P 500 will rise or fall a near-unprecedented 20% in the next 30 days. But some traders caution that the formula feeds the fear it's intended to project. “The VIX is a self-fulfilling prophecy,” said one equity trader who says investors see the VIX break 80 and jump into the fray, selling their stocks and adding to the misery.