William L . Watts for MarketWatch points out that a reading well below 20 has been viewed as relatively tame or indicates that investors have become too relaxed. On the flip side, a reading above 30 signals lots of fear and uncertainty.
“VXX has great potential as a short-term hedge against unforeseen tumult,” according to Morningstar analyst John Gabriel. “But how you buy into volatility matters just as much as the price. Because buying VXX is equivalent to buying futures contracts that frequently trade in contango, holding VXX during a period of peaceful markets will subject investors to significant losses even if the spot VIX holds steady.”
iPath S&P 500 VIX Short-Term Futures ETN
For more information on market volatility, visit our volatility category.
Max Chen contributed to this article.