The CBOE Volatility Index (^VIX) is widely accepted as the "fear indicator" on Wall Street. Referred to simply as "the Vix," it measures the price of essentially all options traded on the S&P 500 (^GSPC), regardless of how far in or out of the money they may be. That means the VIX is tracking wild bets and huge hedge positions that really have little or nothing to say about what's really happening in the trading pits.
Vix futures have also started skewing themselves enormously, in part by providing the cornerstone of exchange traded products (ETPs) that give traders ways to place unconventional volatility bets. The VIX Index itself can't be traded but the instruments that it births do have influence. It's a tangled relationship that has diluted its trustworthiness, but still everyone uses it.
Scott Nations, founder and CIO of NationsShares has a new product coming that he says is a better tool for tracking volatility and the way people on Wall Street really think of it. VolDex is an exchange he's created that strips away the more obscure derivatives and measure the meat and potatoes options linked to the S&P 500 itself using the SPDR ETF (SPY).
By using the SPY, the VolDex measures the price volatility of just the S&P 500, eliminating the noise built into the Vix. Among the other benefits according to Nations are the greater liquidity offerred by the SPY options. The Vix is traded only off the Chicago Board of Trade or CBOE. SPY options "trade on every options exchange in the country" and as a result have bid/ask spreads of pennies rather than dimes.
The VolDex is going to start trading as a Index. Nations is targeting an ETF product in the first quarter of next year. More information can be found on the ISE website.
Nations says he's not trying to replace the Vix. He's just trying to expand the options trading pie for all exchanges by giving investors an easy way to watch and invest in a more direct representation of what traders really think of when referring to volatility.