The VIX is sometimes referred to as the 'fear index' since it implies that more investors are seeking to purchase puts in to insure their positions in anticipation of a declining market. The VIX tends to be mean-reverting and after periods of high Volatility, puts will be quickly sold once the protection is no longer deemed necessary, this can cause the VIX to fall sharply.
It is possible to trade derivative instruments like Options, Futures and ETFs/ETNs on the VIX itself to potentially profit from an opinion about volatility in the S&P 500. As with other index options, these are cash-settled contracts.
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CBOE- VIX Trading Strategies
In this Interactive Brokers sponsored video, Russell Rhoads of CBOE discusses volatility trading via the VIX volatility index. Strategies described are based on VIX index options and futures in addition to VIX ETNs.
External LinksCBOE Volatility Index (VIX)
CBOE introduction to the VIX.When is the Best Time to Start Trading a Volatility Strategy?
VIX Strategies article about planning an entry into a short volatility strategy by selling cash-secured naked puts on SVXY (amongst other subjects).