Friday, September 26, 2008
Facing the Fear Index
byIf you’re following the rollercoaster ride of major financial indices such as the Dow, NASDAQ Composite and S&P 500, add to your bookmarks the Chicago Board Options Exchange (CBOE) Volatility Index® (VIX). Also known as the Fear Index, the VIX is a key measure of market expectations of near-term volatility, as conveyed by S&P 500 stock index option prices. Investors and marketers, take note. 
Since its introduction in 1993, VIX has been considered by many to be the barometer of investor sentiment and market volatility.
Because the VIX is based on the implied (not historical) volatility of S&P 500 stock options, it tends to be sensitive to periods of market uncertainty. Thus, chances are you’ll see the VIX rise as the market falls.
For proof, look at what happened last week, after the market-rattling announcements from financial giants AIG and Merrill Lynch. On Sept. 17th, the VIX rose to its highest level (36.22) since late 2002. Today, Friday Sept. 25th, with the announcement that JPMorgan Chase would acquire assets from WaMu, the VIX peaked at 36.37 at noon before declining to 34.46 at the close of trading.
Toss in the deepening credit crisis and unprecedented financial uncertainty on top of this week’s proposed $700 bank bailout debate, and you can bet we’re in for more VIX ups and downs.
As financial institutions rush to calm investor fears, the VIX might be a good one for marketers to keep their eyes on as they develop marketing messages in the context of economic fears and consumer/market psychology.
Besides, seeing at least something like the VIX rise sure beats crying over one’s declining 401k balance.
