Hey reddit, I had 2 main questions:
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Recently the VIX hit 60+, levels only seen during during the dotcom bubble, '08 and covid. Generally the vix just shows volatility so here it means stocks can fluctuate +/-60% (I understand that's not exactly it but for simplicity sake) but historically it basically just means stocks will crash. Volatility works both ways but you would never see markets rally 10% let alone higher levels when VIX is so high so why do people say it can mean fluctuations (implying down or UP movements) when it exclusively has only related to the down movements?
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I saw people online saying that when the VIX was at severe lows in the 10s in 2021, that the top was in and the market was gonna crash. How is this possible because doesn't this mean less volatility which is a good thing? Less volatility = less fluctuating = better chance of simply trading sideways no? Is it because there's no volatility/movement most people will take their profits so it goes down? Because by this logic when VIX is low its a bad sign when VIX is high its a bad sign, then what the hell is it good for?
Some basic ideas I just want to say before the comments roll in, I understand the vix = volatility isn't that simple and technically it's the rolling average of options prices for the next 30 days etc etc, but in an eli5 sense sources can equate VIX to volatility with the idea that it's inversely correlated to the market and historically this simple explanation seems true.
In addition, I understand in isolation the VIX doesn't mean much, I'm not basing my entire thesis off of just this index however I'm simply trying to get a better understanding of how it operates.
Thank you for the help and I apologize if I made any mistakes!
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