Understanding Implied Volatility and the VIX

What is the primary purpose of the VIX index?

• To track the performance of the S&P 500

• To determine the interest rates

• To measure the level of fear in the market

• To predict future stock prices

How does an increase in stock price volatility affect investor behavior?

• Investors sell off their stocks

• Investors buy more options for protection

• Investors ignore the market changes

• Investors invest in bonds

What happens to option prices when the VIX is rising?

• Option prices decrease

• Option prices remain stable

• Option prices increase

• Option prices become unpredictable

During which period did the VIX experience significant spikes due to market sell-offs?

• 2014-2015

• 2018-2019

• 2010-2011

• 2000-2001

What strategy might market makers use when implied volatility is high?

• Buy options to increase their portfolio

• Invest in foreign markets

• Sell options to benefit from time decay

• Hold onto their current positions