Why vix is a bad play

By comparison, the VIX was Options trading involves bets on which direction a particular stock will go — up or down — and contracts to buy or sell that stock at a pre-negotiated price by a set date. For options traders, big movements can set the stage for big gains. And investors can trade options on the direction of the VIX itself, making a bet on whether the market will become more or less volatile.

But unlike most exchange-traded funds , these funds are purchased with debt and should be held only for a limited period of time, experts say, and are not part of the buy-and-hold strategy favored by many investors.

Experts agree that for most investors, diversifying your portfolio across a variety of assets is the strongest protection when markets get turbulent.

So, they smooth out the volatility of a portfolio's worth overall. Another strategy is using dividend-paying stocks , mutual funds and ETFs. Keeping your portfolio diversified and periodically rebalancing to ensure you have the right mix of assets is the best hedge against volatile markets, Sizemore adds.

It has logged a losing February in three of the past five years. Skip Navigation. VIDEO Zoom In Icon Arrows pointing outwards. Rivian debuts on the Nasdaq — Here's what four pros are saying about the company now. Keris Lahiff. Major Wall Street firm has one of its largest equity overweights ever - and is looking to buy even more stocks. In general, a VIX reading below 20 suggests a perceived low-risk environment, while a reading above 20 is indicative of a period of higher volatility.

The VIX is sometimes referred to as a "fear index," since it spikes during market turmoil or periods of extreme uncertainty. For instance, the VIX spiked in the fall of , around the height of the global financial crisis, climbing above 80 towards the end of that year. It stayed below Contrarian investors — who look for market opportunities by going against conventional thinking—consider a low reading on the VIX to be a bearish signal, indicating market complacency that may spell bad news ahead, while a high VIX reading is believed by some to be a bullish signal.

That said, research shows stock markets, on average, tend to perform better following low VIX readings compared to high ones. Options prices are based on a number of factors, including investors' expectations of market volatility between the current date and the expiration date.