Volatility

What is Volatility? — Definition

Volatility is typically measured by standard deviation of returns over a period — how far returns deviate from the average. The CBOE Volatility Index (VIX), often called the 'Fear Gauge,' measures expected 30-day volatility of the S&P 500 based on options pricing. A VIX above 30 signals elevated fear; above 40 indicates panic conditions; below 15 suggests complacency.

Historically, the S&P 500's annualized volatility is around 15–20%. Individual stocks can be much more volatile — Tesla and many tech stocks regularly show 50–80% annualized volatility. Higher volatility means higher risk, but it also creates buying opportunities for patient investors.

Example

In March 2020, the VIX spiked to nearly 80 — the second-highest reading ever. Options became extremely expensive. For investors who sold volatility (e.g., sold puts on quality stocks they wanted to own), the premiums collected were enormous — and when the market recovered, those positions became very profitable.

Volatility readings are one of the core inputs in BMInsider's Fear & Greed Index, and understanding volatility helps you interpret the index's readings in the context of current market conditions.