Understanding Expected Moves with VIX

If you're new to trading, understanding market expectations can give you an edge in setting levels for your trades.

Let’s break it down using $Cboe Volatility Index(VIX)$ and $SPDR S&P 500 ETF Trust(SPY)$ with a simple rule of thumb:

March 6th, 2025

🔹 VIX = 25 at the close

🔹 SPY = $572 at the close

Here's how we estimate the expected daily move for $S&P 500(.SPX)$ :

1️⃣ Divide VIX by 16

🔹 25 ÷ 16 = 1.56 (This gives us an approximate daily expected % move) traders often use this rule of thumb since VIX represents expected volatility over the next 30 days, and dividing by 16 estimates the daily expected move.

2️⃣ Multiply by SPY price

🔹 $572 × 1.56% = $8.92

3️⃣ Set Your Expected Range

🔹 Upside Target: $572 + $8.92 = $581

🔹 Downside Target: $572 - $8.92 = $563

💡 Why This Matters:

This quick calculation helps traders anticipate volatility and price movement, setting realistic support/resistance levels and planning trades accordingly. It's particularly useful for options traders assessing premium pricing and expected swings.

📈 Pro Tip: If VIX is rising, expect bigger daily swings. If it's dropping, anticipate a tighter range.