Here is a little about the theory around this index: the S&P 500 volatility measures the price variations the prices of the 500 biggest US companies over time. Not going too much into details, we can say that the option prices on the S&P500 index increase due to the stock volatility according to the famous “Black-Scholes” formula. The VIX index is calculated by looking at the current market prices of S&P500 listed options, and by applying the “Black-Scholes” formula you deduct the theoretical volatility of the market as perceived by the world’s biggest option market makers. This is what is called the Implied Volatility.
It is very interesting because it tells you how afraid the World’s biggest investors actually are right now, which is why the VIX is often called “the Fear Index”. Actually VIX is a much better indication of the risks in the markets than the media since the journalists, after all, are not large market investors and the press have a tendency to magnify some issues so it becomes difficult to put things into perspective when you simply inform yourself by reading the news..
As a rule of thumb the market acknowledges that there very little risk if the VIX is below 20%. Between 20% and 30% people start to worry and safe havens, such as gold and silver, become the preferred investments. Above 40%, there is a panic going on.
The graph below is taken from a public site (Yahoo finance). It tells us very simply that the VIX is now a little than 15%, which is extremely low. The "Fear Index" is pretty much at the lowest levels since one year before the Lehman crash.