Shake It Up: Of Mice and Markets

By Nizar Manek, 9 June 2012
(Barron's)
The VIX reflects fears of European default.
“O what a panic’s in thy breastie!” wrote Robert Burns to a mouse in 1785. Today the VIX reflects the fear in investors’ breasts that European default scenarios will disrupt the best-laid schemes o’ mice an’ men. The VIX, short for the Chicago Board Options Exchange Market Volatility Index, measures implied expectations for the S&P 500 Index’s volatility over the next 30 days.
The VIX is like “fire insurance” for stocks, says Bob Whaley, the VanderbiltUniversity professor who developed the VIX in 1992 for the CBOE. Its level of 16 a month ago seemed low to him; lately, increased chances Greece would leave the euro have pushed it to 27. Friday, it stood at 21.57, but Whaley says a spike near 40 wouldn’t be unreasonable if events in Europe worsen.
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http://www.barrons.com/articles/SB50001424053111904470204577446373150515142