Listen and subscribe to Stocks In Translation on Apple Podcasts, Spotify, or wherever you find your favorite podcast
In this episode of Stocks in Translation, Interactive Brokers Chief Strategist Steve Sosnick joins Markets and Data Editor Jared Blikre and Producer Sydnee Fried to discuss the CBOE Volatility Index (^VIX), also known as the VIX, and why investors view it as a fear gauge when assessing the market. Sosnick and Blikre explain why the VIX has signal value and how investors can use it as a tool in trading.
To hear more of Sosnick’s thoughts, watch the full interview here.
Twice a week, Stocks In Translation cuts through the market mayhem, noisy numbers and hyperbole to give you the information you need to make the right trade for your portfolio. You can find more episodes here, or watch on your favorite streaming service.
This article was written by Lauren Pokedoff
You can't actually trade anything quite close to the VIX. Why do we pay so much attention to it?
Because it is because number one, it is viewed as the fear gauge and number two, it really does I it really does have some some value to it. It has value to it. So when you see VIX jump from 20 to 29.56, that is telling me that there is a big demand among institutions for hedging protection. Now, what institutions will do is over time that VIX is a very good short-term hedge. Over time institutions they they can't you know, we just discussed I can, you know, I could basically move my portfolio, we can move our portfolios quickly. If you're managing billions of dollars, you really can't. You know, you're turning around a battleship. And so what happens there is, you know, VIX is a good short-term hedge against that sort of first move, which is why in 2022 you saw VIX spike a lot early in the year and then later in the year it calmed down because the institutions had basically moved on. They they they went to lower beta stocks, they raised cash, etc, etc, all the all the more defensive moves. So they didn't need VIX as much. But one of the things I watch is VIX futures. It's kind of a little difficult to do. Um, you know, but if you can find a way to do it, I I don't know if Yahoo finance shows. Yeah.
Oh we have VIX futures. You can definitely I I used to day trade S&P futures, the spoos, and I would use VIX futures as a guide. I didn't trade them, but I used them as a signal uh to kind of uh inform my short-term trades.