It is constructed using the implied volatilities of a wide range of S&P 500 index options. This volatility is meant to be forward looking, is calculated from both calls and puts, and is a widely used measure of market risk, often referred to as the "investor fear gauge."
Read more: VIX (CBOE Volatility Index) http://www.investopedia.com/terms/v/vix.asp#ixzz4nrm6jlDi
When VIX is high that means the expected prices of the index are all over the map. Everyone is ignoring the index and pricing stocks individually based on fundamentals.
When VIX is low that means all the traders are 'waiting for Janet'. Usually, when waiting for Janet the one year is low and the index and the one year tend to converge. I has another name, wealthier getting much wealthier while waiting for Janet to subsidize the Swamp.
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