What is the S&P 500?

Wikipedia says it is this. Looking at it from 1950 to present, it has been a rough ride. But why should we be interested? It looks like it has had a good run, and if past performance is any indication, while it is no guarantee, it looks like the wheels will fall off again.

Yet everybody follows it like lambs to the slaughter. The VIX Volatility Index, based on that same S&P 500 SPX Index, is how exchanges determine forward valuations of not only the stocks in it, but stocks everywhere. Fund managers use it as a baseline to show how much better their fund did than it. It is the ultimate weighted average of 500 diversified NYSE and Nasdaq stocks for everybody to see relatively how things are going at a glance, and it is used as a yardstick to measure the entire US Economy. If you buy an Exchange Traded Fund unit of it like SPY or SSO, you can walk into nearly every major publicly traded corporate store, and say, "Full Disclosure: I own it!"

Well, if you do, you certainly have the diversified angle covered. You can even buy an ETF to short it x2, and bet that the wheels are going to fall off while you hold it: SDS, thus minimizing your losses, albeit inefficiently. Products that are based on the S+P 500 are also very liquid. That means plenty of shares, capital, and interest both ways on the trades.

This brings us to The VIX S+P 500 Volatility Index. From the link, "On March 26, 2004, the first-ever trading in futures on the VIX began on CBOE Futures Exchange (CFE). As of February 24, 2006, it became possible to trade VIX options contracts." It is the 30 day expectation of Market Volatility of the SPX Index. Well, great, but why? People use the VIX options and futures products to hedge, or lessen, their risk exposure to fluctuations in value of SPX Index based holdings. Generally as the SPX drops, the VIX goes up, and vice versa. As the VIX rises, spreads on the options and futures get wider. If you can't or do not want to trade futures or options, here are plenty Volatility ETF products like XIV, TVIX, VXX, UVXY, SVXY. Those last three have Options on them as well.

There are other volatility indices for other index products as well. The VXN is related to the Nasdaq. The RVX is related to the IWM Russell 2000 index. The OVX is for Oil Volatility. They are less popular than the VIX, but also rely on the VIX for their respective calculations to some extent.

The bottom line is that there are new tools to hedge on the stock market. Maybe there is something there for us! Well, it probably doesn't surprise you that I am all over this like white on rice. Why? Because like the bank robber said when asked, "Why do you rob Banks?", "Because That's where the Money is!" In the Stock Market, that is where most of it all is... Literally.