October 16, 2025 • 7 mins
This week, Wall Street’s fear gauge, the VIX index, topped 20 for the first time since April. So what does that mean? What is the VIX index, how it measures volatility, why does that represent fear, and what can investors learn from it?
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:05):
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson, and good morning Sean Aylmer.
Speaker 2 (00:15):
Good morning Michael.
Speaker 1 (00:16):
Sean. Today it is all about the Fear Index, which
is very appropriate for a podcast called Fear and Greed,
isn't it now. Earlier this week you told us that
Wall Street's fear gauge the VIX top twenty for the
first time since April. Out of context, that may not
mean a huge amount. So today I wanted to know
(00:37):
more about the VIX or the volatility index. What it is,
how it measures volatility, why it represents fear, what investors
can learn from it. A whole lot to cram into
the next four and a half minutes or so take
it away. Let's art at the beginning.
Speaker 2 (00:51):
What is right? So the VIX index is officially known
as the CIBO Volatility Index, SIBO being Chicago Board Options Exchange.
So the CBO Volatility Index or the Fear Index, what
it does, Michael, in brief, it basically measures market expectations,
(01:13):
what investors think will happen in terms of volatility over
the next thirty days on Wall Street. So ah, if
it's a high index, people think Wall Street is going
to be volatile. Ye. If it's a low index, it's
the opposite. So how do you measure that?
Speaker 1 (01:31):
Yes, so it's all about expectations.
Speaker 2 (01:34):
Yes, it is all about expectations, but it's based on
options contracts. So not just expect I mean these are
expectations which people have put money into. So you know,
like an options contract is an agreement to buy or
sell a specific stock at some point in the future.
(01:54):
So if you think that you might have an option
to buy stock in the future if you think it's
going to rise, or sell stock in the future at
the current price, if you think it's going to fall.
So that's how options work. So what it's looking at,
So the VIX index is looking at these options contracts
and measuring what's going on there where there's a lot
(02:17):
of them, few of them, and judging based on that
what it thinks will markets expectations of volatility. So it's
measured sort of like starts at zero to fifty. I mean,
fifty is pure fear run for the hills. If you're
at fifty, like zero to twenty is sort of stable generally,
(02:41):
like twenty to thirty is mildly nervous once you get in,
you know, thirty to fifty year in panic mode, fifties fear.
You don't really see those sorts of numbers. I mean,
you mentioned it before, we were talking earlier in the
week that it pushed above the twenty point mark, which
is nervous mark. And that's after Donald Trump talked about
(03:02):
tariffs with China. It hit above pushed about forty points
briefly in April when there was all the talk about
a trade war. You know, so that's panic. Yeah, forty
points is definitely panic. What happens in vesters looks at
the VIX index and makes decisions, So they make a
decision about buying or selling the market based on the
(03:24):
VIX index. Interestingly, though it's beyond me how these things work,
you can actually buy VIX linked assets that you can
buy a future contract which is linked to the VIX index,
which still is underpinned by futures contracts.
Speaker 1 (03:41):
Oh, that is that is getting very kind of inception
style kind of Sean. Did you know, do you know
what the highest level that the VIX has ever closed at? No,
I don't what is it? It was eighty two point
six y nine, and it was on March sixth to
Global Financial Christ twenty twenty, it was COVID.
Speaker 2 (04:03):
Oh it's COVID, yeah.
Speaker 1 (04:05):
Twenty twenty, March sixteen, twenty twenty. If we do go
back to the financial crisis, it was it did hit
an intra day high in twentusand and eight October twenty four,
two thousand and eight of eighty nine point five to three.
So I mean these are runs for the hills. They
are exceptional events and exceptional results on those days. That's
(04:26):
insanely high.
Speaker 2 (04:28):
Yeah. Volatility, I mean we always talk about the market
doesn't like volatility, and you know, it likes legislation that's
set in place, likes knowing where policies are going. Investors
like knowing where companies are going. So in the last
couple of days, we've had A and Z come out
with this big strategy and investors like that, so they
(04:49):
buy it. We've had Treasury wine estates saying things are
struggling in China, so they sell it so that people like.
So when we talk about volatility, investors don't like volatility.
So there's a bunch of measures also out there. Beyond
the vix around volatility, and mostly not all of them
are this Chicago Board Options Exchange CBO. The reason we
(05:12):
should get used to that because we had a story
in the last couple of weeks where ask our regulator
has green lighted CEBO to start offering products here. So
we're going to hear a lot more about CBO. That's
a side. But some of their measures volatility measures. They've
got something called spot vole s PO t vol spotfole
(05:32):
day to day volatility in the s and P five hundred.
Speaker 1 (05:34):
Michael, No, you know what, I'm just going to let
that one go, Sean, because it feels like we've been
going so well this whole episode, and I haven't said
anything that's made anyone question our credibility, and if I
start to make fun of that name, it's just going
to damage us. So please go.
Speaker 2 (05:52):
Okay. The LTV the left tail volatility index? What is that?
So that's a measure of whether people think there's going
to be a black Swan event, so they're like rare
but catastrophic events for the market, COVID being a black
swan event being a good one. That left tail volatility index,
(06:15):
you reckon would be pretty high back in March twenty twenty.
Speaker 1 (06:19):
Yeah, yeah, you would imagine, and so they are used,
but we hear more about the VIX.
Speaker 2 (06:25):
Right, Yeah, and then there's just really more basic ones
like put to call options. So like put options the
bearish bets on the market, call options are bullish bets.
So the higher that ratio, the higher put to call
higher bearish to bullish basically shows that this more bearish sentiment.
Speaker 1 (06:43):
I'll tell you what, today's episode has been crammed full
of knowledge, Sean. And if you did not learn something today,
then you just were not listening hard enough because there
are so many little gems throughout that The left L
Volatility Index is something that I will carry with me
for the rest of my days, Sean. Thank you very much.
Speaker 2 (07:06):
Thank you, Michael.
Speaker 1 (07:07):
And remember, if you've got something that you would like
to know, if you've got something that you'd like us
to dig into and for sure to explain in these
simple terms, then send it on through by LinkedIn, Instagram, Facebook,
or at Fearandgreed dot com dot au. Are Michael Thompson
and this is Fear and Greed Q and a
Welcome to Fear and Greed Q and A, where we
ask and answer questions about business, investing, economics, politics and more.
I'm Michael Thompson, and good morning Sean Aylmer.
Speaker 2 (00:15):
Good morning Michael.
Speaker 1 (00:16):
Sean. Today it is all about the Fear Index, which
is very appropriate for a podcast called Fear and Greed,
isn't it now. Earlier this week you told us that
Wall Street's fear gauge the VIX top twenty for the
first time since April. Out of context, that may not
mean a huge amount. So today I wanted to know
(00:37):
more about the VIX or the volatility index. What it is,
how it measures volatility, why it represents fear, what investors
can learn from it. A whole lot to cram into
the next four and a half minutes or so take
it away. Let's art at the beginning.
Speaker 2 (00:51):
What is right? So the VIX index is officially known
as the CIBO Volatility Index, SIBO being Chicago Board Options Exchange.
So the CBO Volatility Index or the Fear Index, what
it does, Michael, in brief, it basically measures market expectations,
(01:13):
what investors think will happen in terms of volatility over
the next thirty days on Wall Street. So ah, if
it's a high index, people think Wall Street is going
to be volatile. Ye. If it's a low index, it's
the opposite. So how do you measure that?
Speaker 1 (01:31):
Yes, so it's all about expectations.
Speaker 2 (01:34):
Yes, it is all about expectations, but it's based on
options contracts. So not just expect I mean these are
expectations which people have put money into. So you know,
like an options contract is an agreement to buy or
sell a specific stock at some point in the future.
(01:54):
So if you think that you might have an option
to buy stock in the future if you think it's
going to rise, or sell stock in the future at
the current price, if you think it's going to fall.
So that's how options work. So what it's looking at,
So the VIX index is looking at these options contracts
and measuring what's going on there where there's a lot
(02:17):
of them, few of them, and judging based on that
what it thinks will markets expectations of volatility. So it's
measured sort of like starts at zero to fifty. I mean,
fifty is pure fear run for the hills. If you're
at fifty, like zero to twenty is sort of stable generally,
(02:41):
like twenty to thirty is mildly nervous once you get in,
you know, thirty to fifty year in panic mode, fifties fear.
You don't really see those sorts of numbers. I mean,
you mentioned it before, we were talking earlier in the
week that it pushed above the twenty point mark, which
is nervous mark. And that's after Donald Trump talked about
(03:02):
tariffs with China. It hit above pushed about forty points
briefly in April when there was all the talk about
a trade war. You know, so that's panic. Yeah, forty
points is definitely panic. What happens in vesters looks at
the VIX index and makes decisions, So they make a
decision about buying or selling the market based on the
(03:24):
VIX index. Interestingly, though it's beyond me how these things work,
you can actually buy VIX linked assets that you can
buy a future contract which is linked to the VIX index,
which still is underpinned by futures contracts.
Speaker 1 (03:41):
Oh, that is that is getting very kind of inception
style kind of Sean. Did you know, do you know
what the highest level that the VIX has ever closed at? No,
I don't what is it? It was eighty two point
six y nine, and it was on March sixth to
Global Financial Christ twenty twenty, it was COVID.
Speaker 2 (04:03):
Oh it's COVID, yeah.
Speaker 1 (04:05):
Twenty twenty, March sixteen, twenty twenty. If we do go
back to the financial crisis, it was it did hit
an intra day high in twentusand and eight October twenty four,
two thousand and eight of eighty nine point five to three.
So I mean these are runs for the hills. They
are exceptional events and exceptional results on those days. That's
(04:26):
insanely high.
Speaker 2 (04:28):
Yeah. Volatility, I mean we always talk about the market
doesn't like volatility, and you know, it likes legislation that's
set in place, likes knowing where policies are going. Investors
like knowing where companies are going. So in the last
couple of days, we've had A and Z come out
with this big strategy and investors like that, so they
(04:49):
buy it. We've had Treasury wine estates saying things are
struggling in China, so they sell it so that people like.
So when we talk about volatility, investors don't like volatility.
So there's a bunch of measures also out there. Beyond
the vix around volatility, and mostly not all of them
are this Chicago Board Options Exchange CBO. The reason we
(05:12):
should get used to that because we had a story
in the last couple of weeks where ask our regulator
has green lighted CEBO to start offering products here. So
we're going to hear a lot more about CBO. That's
a side. But some of their measures volatility measures. They've
got something called spot vole s PO t vol spotfole
(05:32):
day to day volatility in the s and P five hundred.
Speaker 1 (05:34):
Michael, No, you know what, I'm just going to let
that one go, Sean, because it feels like we've been
going so well this whole episode, and I haven't said
anything that's made anyone question our credibility, and if I
start to make fun of that name, it's just going
to damage us. So please go.
Speaker 2 (05:52):
Okay. The LTV the left tail volatility index? What is that?
So that's a measure of whether people think there's going
to be a black Swan event, so they're like rare
but catastrophic events for the market, COVID being a black
swan event being a good one. That left tail volatility index,
(06:15):
you reckon would be pretty high back in March twenty twenty.
Speaker 1 (06:19):
Yeah, yeah, you would imagine, and so they are used,
but we hear more about the VIX.
Speaker 2 (06:25):
Right, Yeah, and then there's just really more basic ones
like put to call options. So like put options the
bearish bets on the market, call options are bullish bets.
So the higher that ratio, the higher put to call
higher bearish to bullish basically shows that this more bearish sentiment.
Speaker 1 (06:43):
I'll tell you what, today's episode has been crammed full
of knowledge, Sean. And if you did not learn something today,
then you just were not listening hard enough because there
are so many little gems throughout that The left L
Volatility Index is something that I will carry with me
for the rest of my days, Sean. Thank you very much.
Speaker 2 (07:06):
Thank you, Michael.
Speaker 1 (07:07):
And remember, if you've got something that you would like
to know, if you've got something that you'd like us
to dig into and for sure to explain in these
simple terms, then send it on through by LinkedIn, Instagram, Facebook,
or at Fearandgreed dot com dot au. Are Michael Thompson
and this is Fear and Greed Q and a
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