FA Center: How to play the volatile highs and lows of the VIX

Think you know the significance of high and low VIX readings, and how best to respond?

Chances are you’re wrong. For example, many financial advisers recommend that clients grin and bear it when the CBOE Volatility Index (VIX) VIX, +5.00% spikes, as it did in late January and early February as the market experienced its first 10+% correction in years. Such volatility is the price we must pay to participate in the stock market, they say.

Still others consider the VIX to be a good contrarian indicator. Following the CBOE’s lead in considering the VIX to be a “fear index,” these advisers recommend that their clients actually increase their equity exposure when the VIX spikes and reduce it when it recedes.

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