VIX Volatility Index and Market Sentiments

There are many indicators that appeared as useful for the investment industry. One of them is Volatility Index (VIX). This specific indicator is used to determine the market direction by measuring the confidence level of the investor. To better understand the sentiments of the market players, it estimates the lulls and bottoms in the market.
In the financial market, the trend trading has emerged as one of the best and most effective strategies. Before that, most of the investors were almost bound to follow the path of their senior investors. Through this new technique, an investor is no more bound to follow a specific person. He can now build his own strategies according to his capital. As soon as the market trend is expected to become bearish, they will react promptly and will take significant measures for their protection. However, if they don’t want to react at that time, they have to option to hedge against their asset to minimize the risk. The hedging will immediately cause a change in the financial market which as a result either increases or decreases the price of an asset.
The main purpose of VIX is to keep an eye on the major financial institutions and this help the small investors to construct their strategies. Interestingly, it not just works for demand and supply forces, also works for calculating the ratio of call and put while hedging. The increase and decrease shown by the VIX is actually a perception of an investor about the financial Institute.
A question appears that how VIX can affect the investing? Maxim gave the best explanation as: The best time to buy is when VIX is on the rise. On the other hand, when VIX is at the slower side, look for the other way around. For the investment purpose, if VIX is on the rise, it means that the market is showing bearish trend. At this point, most of the investors will try to look for the buying option expecting that soon market will turn towards bullish trend. In this situation, for the options most of the investors will look for the Vega negative and delta positive. Contrary, if VIX is consistently falling down, then investors will see a complete different situation for their underlying asset. Under this situation, a majority of the investors will look forward to selling options. Hence, the best strategy would be to go for the Vega positive and delta negative strategy.
Currently, the VIX is mostly used to examine S&P 500 index points and its implied volatility. The VIX has shown some significant market sentiments. However, it has also shown some disconnection. This happens where a larger financial institution feels that the financial market is being overbought, and the individual investor is still looking forward to buying more. As a result, in these case traders are sent the signals for not to go for hedging too early.