The thing is the VIX reflects the current risk level perceived by the world biggest banks and investment companies as it shows the implied volatility of the option contracts traded by those large investors to hedge (you could say insure) their large investment portfolios. To keep it short, we can say the following about the VIX levels:
- there very little perceived risk if the VIX is below 20%.
- between 20% and 30% people start to worry about the stock market
- and above 40% the market starts to panic completely
I am not saying that a high VIX means necessarily a stock market downturn, it simply means that the large investors are starting to get very nervous about the market. And today is such a day: the VIX has now passed the threshold of 20% implied volatility, mainly because of the current budget crisis in Washington. As you can see by yourself in this public available data provided by CNBC (press here to be redirected to the CNBC page).
- option prices are now fairly high, which makes it especially interesting to sell options if you believe that they will expire out-of-the-money,
- well if large investors are getting nervous, maybe there is a reason and the stock market will probably decrease soon if the Washington budget crisis does not end quickly.