VIX measures the implied volatility level of the S&P 500. This is the most popular of the volatility indexes. In other words, the VXN measures fear and uncertainty associated with the S&P 500. If the VIX reading is low (0-20), it indicates that individuals are comfortable and fear levels are low. A high VIX reading (above 20) indicates fear and uncertainty in the market place, which results in a more volatile market environment.
Traders often trade VIX options to hedge their portfolio. There is also and ETF with ticker symbol VXX that is supposed to reflect the action in the VIX.
Check out this 1 year chart of the VIX to get a feel for the the way this instrument moves:
Related Terms: VXN, VXD