Volatility refers to how much something moves around. If your friend is volatile, they might skip to the car, giddily excited about going out to dinner...only to get swearing-mad in traffic a few minutes later...followed by another quick swing to open weeping when "Cat's In The Cradle" comes on the radio.
Think about a stock that behaves the same way. It's up, then suddenly it's down. Big swings. That's volatility.
Wall Street players can actually bet on volatility. Not betting whether stocks will go up or down. Just that they will make big moves one way or another.
The CBOE Russell 2000 Volatility Index is a vehicle for that kind of bet. When the index rises, it means volatility is on the rise. Think: a tumultuous political situation, or ahead of a contentious Federal Reserve meeting, or in the middle of an uncertain economic situation. When the index is down, things are Even Steven. Not much movement. Everything is pretty much steady as she goes.
The "Russell 2000" part comes in because the volatility is based on the activity of the stocks in the Russell 2000 index. This is an extremely broad index of stock performance. The Dow Jones Industrial Average includes 30 stocks. The S&P 500 includes 500 stocks. The Russell 2000 has that beat by four times. (We've done the math for you...comes out to "2,000").
So the CBOE Russell 2000 Volatility Index looks at volatility across a broad cross section of the equity market.
Related or Semi-related Video
Finance: What is the Russell Index?4 Views
What is the Russell Index? Well it's an index like a stock
index abroad one the Russell is actually a series of
various indices that track the progress or lack thereof of stocks in a given
sector or basket like many indices the Russell index is actually owned and/or
managed by the footsie or f TSI based in London that's the financial time stock [sky scraper in London]
index F TSI footsie and the indices come in all kinds of flavors with an example [ice cream counter]
right here where you can see funds with catchy titles like the Russell 3000
growth and the Russell 1000 value and the Russell mid cap yeah the Russell
micro cap and the anemic Russell top 200 it's only 200 companies there and that
top 200 yeah no relation to top gear the video Yelp of cars alright well why do [Top Gear website with Nissan Leaf charging]
we need yet another set of indices well we already have the Vanguard series
featuring the famous ticker s py or S&P 500 we have the Wilshire 5000 which
isn't really 5000 and we have a bunch of others each of which give market
insights from slightly different lenses like that and that and yeah that well [microscope, magnifying glass]
the answer because investors are willing to pay for those insights and/or invest [money passing hands]
in those index funds and will likely keep doing so until there's no more [money piling up]
money to be made at which point everything gets renamed to being an out
Dex
Up Next
The Wilshire 5000 is an index fund, which is kind of a bummer...it sounded like a cool financial robot.
What is the S&P 500? It's Standard & Poor's 500 generally largest companies, with a U.S. domestic bias. The S&P 500 is usually what investors think...