Welcome to a New Era of Fear Gauge. Meet the One-Day VIX

The VIX1D is designed to capture the sentiment of trading boom in options that expire in less than 24 hours, which have become increasingly popular among traders. The VIX has long been considered the market's fear gauge and is calculated using derivatives that expire 23 to 37 days into the future.

The Cboe 1-Day Volatility Index (ticker VIX1D) opened Monday at 8.55, compared with a reference point of 13.27 on Friday, surged as high as 9.88 before pulling back to 9.75 as of 3 p.m. in New York.

However, as traders are turning to zero-days-to-expiration (0DTE) options, the VIX has struggled to capture near-term sentiment resulting in concerns over its effectiveness as a sentiment barometer. About a month ago, as Wall Street stared down the barrel of an incipient banking crisis, the fear gauge did a funny thing: It didn’t do much.

By Q3 2022, 0DTE contracts accounted for over 40% of the S&P 500's total options volume, almost doubling from six months prior.

While the VIX can be thought of as an estimate of stock turbulence a month hence, the single-day version's vastly shorter time horizon may make it a litmus for particularly chaotic market views: one measured in hours rather than days or weeks.

It remains to be seen if Wall Street professionals will find a use for the one-day VIX akin to the seminal role played by the longer-dated version, which was conceived three decades ago by Cboe.