Why the VIX Often Rises When Stock Prices Fall

Summary

The document describes why the VIX often rises during stock-market declines. It emphasizes that VIX is calculated from a strip of options rather than directly from stock prices, with option contributions weighted by strike. When the market falls, realized volatility often increases and option implied volatility may be marked higher, sometimes alongside a steeper volatility skew. Those changes in the option prices feed into the VIX calculation.

The answer presents this as a typical market pattern, not a mechanical rule that every decline must raise VIX. It also distinguishes VIX from a measure of current stock-market levels: the index reflects option-implied expectations of future volatility. The question’s reference to vega does not explain the stock-price relationship; vega describes an option’s sensitivity to implied volatility. The document offers a qualitative account and does not provide the full index formula or evidence for a causal explanation of volatility spikes.

Key ideas

• VIX is derived from a weighted strip of options rather than stock prices themselves.
• Market declines often coincide with higher realized volatility and repricing of implied volatility.
• Changes in implied volatility and skew affect the option-based VIX calculation.
• VIX reflects expected future volatility and is not a direct measure of current stock prices.
• Vega measures option sensitivity to implied volatility, not sensitivity to stock-price changes.

Tags

# why Implied Vol (VIX) increase with decrease in Stock Price or vice versa?


# why Implied Vol (VIX) increase with decrease in Stock Price or vice versa?












why Implied Vol (VIX) increase with decrease in Stock Price or vice versa? whereas Vega is positively related with change in option price to change in stock price.

## Answer by mbison (score 1)

https://quant.stackexchange.com/a/28123

you can find from the CBOE paper above mentioned that the value is pretty much that of a strip of vanillas, weighted by 1/K^2.

Typically if spx spot goes down, then realized vol increases. Together with the increase of realized vol, implied vol gets "re-evaluated" and typically marked higher with a steeper skew etc.

the remark of the implied vol surface will cause the Vix index to go up as per the formula from the CBOE white paper.

So, perhaps the better question would have been: "why does vol spike when markets tank?"

## Answer by Brian O'Donnell (score 0)

https://quant.stackexchange.com/a/26062

Please read "Volatility's Impact On Market Returns" at http://www.investopedia.com/articles/financial-theory/08/volatility.asp.

It is important to remember that VIX is a volatility index comprised of options and not stocks. It predicts volatility of future prices. It is not a measure of the present stock market.

For a more thorough understanding see the white paper entitle "The CBOE Volatility Index - VIX" at https://www.cboe.com/micro/vix/vixwhite.pdf.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.