Key measure of market volatility — the VIX — jumps above 50, highest level since Aug 2015

A key measure of market volatility is surging in early trading Tuesday after a triple-digit percentage move the previous day.

The CBOE Volatility Index, or VIX, is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. It’s sometimes called the “fear gauge.”

Volatility refers to the amount of uncertainty in the size (and direction) of changes in a security’s value and is typically measured by the deviation of returns.

The VIX surged by 115.6 percent on Monday to 37.32. It rose Tuesday morning to over 50, the highest level since Aug 2015.

CBOE VIX one-year chart

Source: FactSet

Tuesday’s move higher in the VIX comes after a stunning decline of more than 80 percent in after hours trading Monday for exchange-traded note VelocityShares Daily Inverse VIX Short-Term (XIV).

XIV is issued by Credit Suisse and is supposed to give the opposite return of the VIX. The security was halted early Tuesday.

Concerns are rising that Credit Suisse and other issuers of volatility-linked securities could seek to liquidate the funds. Such a move could artificially drive the VIX even higher and spark another big equity sell-off, some traders feared.

“That’s the instrument that’s going haywire,” Jim Cramer said Monday during a CNBC special report, referring to the ‘XIV.’ “It is blowing up as we speak.”

“It should put downward pressure on the stock market at the opening, should spike the VIX to 50 and then cause the market to go down,” he said Monday.