The VIX Conspiracy Theory That Doesn't Go Away
Despite constant conspiracy theories, manipulating this index is virtually impossible
The VIX measures how volatile traders expect the stock market to be. Despite conspiracy theories that occasionally surface, manipulating this index is virtually impossible.
The Money Required Would Be Astronomical
The VIX isn’t based on a single stock or even a handful of securities. Instead, it’s calculated from prices across S&P 500 options contracts. The S&P 500 options market is one of the largest and most active markets in the world. We’re talking about hundreds of billions of dollars in daily trading volume. To move the VIX meaningfully, a manipulator would need to deploy tens or hundreds of billions of dollars across all relevant option strikes.
The Calculation Method Itself Resists Manipulation
The VIX uses a clever calculation method that makes manipulation even harder. It takes the midpoint between bid and ask prices rather than actual trades, meaning you can’t just execute a few trades at crazy levels to move the index. You’d need to actually move the entire market’s pricing structure.
The index also automatically excludes any options with prices below $5, preventing anyone from using cheap, thinly-traded options to distort the calculation. The built-in safeguards make cheating much harder.
Arbitrage Traders Would Sink Any Manipulation Attempt
Any successful manipulation attempt would create its own downfall. If someone managed to artificially push the VIX higher or lower, they’d create what traders call an “arbitrage opportunity”, essentially free money for anyone who spots it.
Professional trading firms have sophisticated computer systems constantly scanning for these opportunities. The moment the VIX diverges from its fair value, these systems would trigger massive trades to profit from the discrepancy, automatically pushing prices back to normal.
The Cops Are Watching
The financial regulators actively monitor VIX-related trading for signs of manipulation. The exchanges themselves have surveillance systems that flag unusual trading patterns in the options that determine the VIX.
Getting caught manipulating markets is criminal. We’re talking about potential jail time, massive fines, and lifetime bans from the financial industry. The risk-reward simply doesn’t make sense, especially given how hard it would be to succeed in the first place.
Time to Put These Conspiracy Theories to Bed
The VIX is like a thermometer measuring the temperature of the entire stock market’s fear level. Just as you can’t fake an entire city’s temperature reading by holding a match under a few thermometers, you can’t manipulate the VIX without moving the entire S&P 500 options market.
The combination of massive scale, prohibitive costs, automatic market corrections, and regulatory oversight makes the VIX one of the most manipulation-resistant financial measures we have. While no system is perfect, the barriers to VIX manipulation are so high that it remains a reliable gauge of market sentiment.