VIX

The CBOE Volatility Index, or VIX, measures the implied volatility of options on the S&P 500. It is a very popular tool for traders who use the VIX to gauge levels of fear or complacency in the market.

Traders use the VIX to trade both markets like the SPDR S&P 500 ETF (SPY) as well as trading the Volatility Index itself through instruments like the iPath S&P 500 VIX Short-Term Futures ETN (VXX ).

Traditionally, traders have looked at low VIX levels as potential opportunities to buy and high VIX levels as potential opportunities to sell or sell short

When used properly, they found that the VIX remains an excellent tool - particularly for short term traders looking to take advantage of markets when they reach extremes

Comparing the VIX to a 10-day moving average of the VIX - this widely used indicator actually has a very good track record of helping short term traders anticipate and trade market turns.

The trick is to see the VIX as a very dynamic indicator, not a static one.