By Nivine Richie
This video describes the relationship between stock prices and the volatility index called the VIX. This index tracks volatility based on the current prices for options on the CBOE. Call options allow holders to buy shares at a predetermined strike price when markets rise, and put options allow holders to sell shares at a predetermined strike price when markets fall. Options become more valuable when markets are highly volatile.
This volatility is what the VIX index captures, and is used by traders to bet on whether uncertainty is rising or falling.
What is implied volatility versus historical volatility?
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