VIX, the fear gauge, and crowd psychology

VIX is often called the fear index, because it jumps when stocks fall fast. This article sets out what VIX actually measures and what goes into CNN's Fear & Greed Index, and calculates how SPY and QQQ moved after days when VIX closed above 20, 30 and 40. The VIX data are daily closes from November 22, 1993 to September 30, 2026 (8,271 days), and figures are as of September 30, 2026.

What VIX measures

VIX is the expected volatility over the next 30 days, worked back from S&P 500 index option prices. Under Cboe's methodology, out-of-the-money puts and calls across a wide range of strikes in the two expiries with more than 23 and fewer than 37 days to go are weighted and interpolated to a 30-day value. When it first appeared in 1993 it was based on S&P 100 options; it switched to the current method in 2003, and the old index lived on as VXO until Cboe stopped calculating it in 2021. Since October 2014, weekly S&P 500 options have been part of the calculation, so expiries closer to 30 days are used.

VIX is an annualized volatility, so a VIX of 20 reads as option prices implying a one-standard-deviation range of roughly 20 ÷ √12, about ±5.8%, over the next month. Options are insurance and usually trade above the volatility that follows. Against SPY's actual volatility over the next 21 trading days, VIX was higher on 82.9% of days, with a median gap of 4.4 points. This gap is called the variance risk premium.

CNN Fear & Greed Index

CNN's Fear & Greed Index combines seven indicators with equal weight into a score from 0 (extreme fear) to 100 (extreme greed). According to sources that relay CNN's description, the seven are:

• Stock price momentum: the S&P 500's distance from its 125-day moving average
• Stock price strength: the number of NYSE stocks at 52-week highs against those at 52-week lows
• Stock price breadth: volume in rising against falling NYSE stocks (the McClellan Volume Summation Index)
• Put and call options: the five-day average of the Cboe put/call ratio
• Junk bond demand: the yield spread between junk and investment-grade bonds
• Market volatility: VIX against its 50-day moving average
• Safe haven demand: the difference between Treasury and stock returns over the last 20 trading days

VIX is one of the seven, and most of the rest measure, from other angles, how far prices have just fallen. So days with a low Fear & Greed reading largely overlap with days of high VIX. This site has not collected the index's past daily values, so the calculations below use VIX only.

VIX is mostly low, and its high days cluster

Over this period the VIX close averaged 19.7 with a median of 17.8. It closed above 20 on 38.5% of days, above 30 on 8.5% and above 40 on 2.5%. The highest close was 82.69 on March 16, 2020 and the lowest 9.14 on November 3, 2017.

Returns after high-VIX days

Assuming VIX is read at the close and the ETF bought at the next open, returns were measured to the close 21, 63, 126 and 252 trading days later (dividends included, no costs). The table shows medians, and the day count is the number of days in the 12-month column. SPY starts in November 1993 and QQQ in March 1999. A new window starts every day, so neighboring days' windows mostly overlap and their results are not independent of each other.

Twelve-month returns after days with VIX above 30 or 40 were higher than after all days. For SPY the median was +14.7% for all days, +24.6% above 30 and +33.7% above 40. Days above 20, on the other hand, were positive after 12 months only 71% of the time, below all days (81%), with the same low. The area around 20 includes many days when a decline is just starting. Quiet days with VIX at 15 or below were positive after 12 months 92% of the time, so a low VIX was not a warning either.

The day counts are not the number of independent chances. Of the 207 days above 40, 124 (59.9%) fell in 2008 to 2009 and 35 (16.9%) in 2020. The 97% positive rate above 40 is mostly these two crises counted again on each date.

First day versus any day

To remove the clustering, only first days were kept: days when VIX closed above 40 after three months (63 trading days) at or below 40. SPY had ten such days.

Twelve months after a first day, SPY was positive in eight of ten cases, with a median of +23.9%. That is below the median for all days above 40 (+33.7%), because the later days deep in a crisis pulled that median up. First days above 30 (19 of them) had a 12-month median of +16.1%, close to all days (+14.7%), but were positive only 68% of the time, below all days (81%). Among QQQ's first days above 30, April 14 and October 12, 2000 were followed by −47.1% and −55.4% over 12 months.

2008: fear followed by further falls

In 2008, VIX first closed above 40 on September 29 (close 46.72). Buying SPY at the next open meant another −39.5% to the March 9, 2009 low, and it was still −28.9% six months later. VIX closed above 40 on 124 days in 2008 to 2009. In 2020 it first closed above 40 on February 28 (close 40.11), and SPY then fell −24.8% to the March 23 low. A high VIX meant prices had already fallen a lot, not that they would fall no further.

What research found

• The name fear gauge: Robert Whaley, who designed VIX, set out in his 2000 Journal of Portfolio Management paper "The Investor Fear Gauge" how VIX rises sharply when the market falls.
• Variance risk premium and later returns: in a 2009 Review of Financial Studies paper, Bollerslev, Tauchen and Zhou reported that the gap between implied and realized variance explains part of stock market returns after 1990, with predictive power strongest at the quarterly horizon. They used realized variance from high-frequency data, which differs from this article's daily calculation.
• Crowd psychology: loss aversion, which makes a loss feel bigger than a gain (Investor psychology), raises demand for puts as insurance in a sell-off, and that lifts VIX. High-VIX days are also the days people least want to buy.

When the idea holds and when it fails

• Medians after extremes were higher: for SPY and QQQ, the 12-month medians after VIX above 30 and 40 were higher than for all days. US indexes recovered from every crisis in this period, and the result comes from only a few crises.
• It did not give the timing: as on September 29, 2008, prices kept falling for more than five months after the first day above 40. After the March 2000 high, prices kept falling for more than a year while VIX stayed below 40; it first closed above 40 in that decline on September 17, 2001.
• VIX 20 was not a signal: the 12-month positive rate above 20 was below that of all days.
• The baseline is not fixed: some years, like 2017, kept VIX around 10, while in 2009 it closed above 30 on 111 days. The same 30 weighs differently at different times (Reading indicators).

Related concepts and search terms

• Implied volatility: volatility worked back from option prices. VIX combines the implied variance of many S&P 500 options.
• VXN, VXO, V-KOSPI: VXN from Nasdaq-100 options, VXO in VIX's old method (discontinued in 2021), and V-KOSPI 200 (Korea's volatility index) from KOSPI 200 options belong to the same family.
• Contrarian investing: buying when the crowd is most afraid (John Templeton's contrarian bargain buying).
• VIX futures and term structure: the VIX index itself cannot be traded; what trades are VIX futures and products that track them, and they move differently from the index.

Search terms: VIX, fear gauge, CNN fear and greed index, VIX above 30 stock returns, variance risk premium, implied volatility, fear index, Fear and Greed Index, returns after VIX spikes, V-KOSPI.

Limits of these numbers

• The VIX data are the daily closes this site receives, from November 1993. VIX has values from 1990, but earlier years were not calculated.
• Every overlapping window was counted, so day counts are not numbers of independent samples. First days above 40 number only ten for SPY and nine for QQQ.
• Returns include dividends and leave out trading costs, taxes and exchange rates. They come from a period in which US indexes eventually recovered.
• The Fear & Greed components were checked through sources that relay CNN's description; CNN's own page and past values were not checked directly for this article.