The VIX (CBOE Volatility Index) measures the market's expectation of 30-day forward volatility for the S&P 500, derived from option prices. Often called the "fear gauge," a VIX of 15 implies the market expects approximately 15% annualized volatility over the next month. The VIX typically ranges from 10–15 in calm markets, 20–30 during corrections, and can spike above 50 during crises (it hit 82 during the March 2020 COVID crash).
The VIX exhibits mean-reversion: extreme readings tend to normalize within days to weeks. This property is exploitable through volatility-selling strategies — when VIX spikes, selling options captures elevated premiums that decay as volatility normalizes. However, selling volatility carries tail risk: rare but severe spikes can produce catastrophic losses (the XIV ETN collapsed 95% overnight in February 2018 during "Volmageddon"). Closelook uses VIX as one of nine dimensions in the Weekly Signal regime scoring — elevated VIX compresses the composite score, signaling defensive positioning regardless of what other indicators suggest.
VIX is the market's fear gauge and the single most important input for options pricing. When VIX spikes above 30, options premiums become extremely rich — creating the best opportunities for Closelook's Volatility Harvesting engine. When VIX drops below 15, premiums shrink and selling options offers poor risk-reward. This volatility cycle is the engine that drives the Derivatives portfolio.
Beyond options trading, VIX serves as a regime indicator. Sustained VIX above 25 typically coincides with bear markets or corrections. VIX between 15-20 is the "goldilocks" zone for equities. A compressed VIX below 12 often precedes volatility spikes — calm before the storm. Closelook incorporates VIX as the Volatility dimension in the Weekly Signal framework, weighted at 10% of the composite score.
VIX connects to Covered Calls and Cash-Secured Puts (premium levels), Market Regime scoring (volatility dimension), and the Maximum Drawdown metric that materializes when VIX spikes.
