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 S&P 500?45 Views
finance a la shmoop. what is the S&P 500? well the S&P 500 is just an index- that
is the standard and poors company assembled 500 stocks put them on a
spreadsheet- this was a spreadsheet in 1957 -and they tracked them. [spreadsheet pictured]
well the index had something like 37 shares of Procter & Gamble, the 23 shares
of Ford, 18 shares of IBM and so on. in the 1950s the S&P 500 totaled something
like 40 maybe 50 bucks on a good day. at the end of each day the elves who worked
inside of the S&P Factory, they would add up the shares basically ignore any
dividends and send to the press a total which was published to more or less
everyone who cared about investing. well not nearly even a century later the 40 [man reads newspaper]
to $50 reign to the SNP is today knock on the door of 2,500 .so without even
having dividends reinvested you'd have made 50 times your money with dividends
reinvested to buy more shares instead of keeping the cash to buy you know
groceries or electric massage slippers. you'd have made over 70 times your [grocery display case and slippers pictured]
original investment. welcome to America.
Up Next
The Russell Index is a series of indices that tracks the progress of stocks in a given basket. Aw. We were hoping it tracked adorable Jack Russell...
The Wilshire 5000 is an index fund, which is kind of a bummer...it sounded like a cool financial robot.