Adaptive Risk Weather is a broad gauge of whether downside protection is more or less affordable based on market conditions: when Risk Weather is ‘Low’ or ‘Medium’, the cost of downside protection tends to be lower, as compared to when Risk Weather is ‘High’ or ‘Very High’.
Risk Weather measures the market’s expectations for price movements, based on the price premium and implied volatility of publicly traded stock options. Risk Weather communicates if market seas are expected to be calm or stormy, as reflected in the cost of downside protection (‘put options’ are more expensive if danger feared) and the premium which can be charged for selling upside protection (‘call options’ are also more expensive if greater volatility expected).
We currently use the VIX as our measure, though this may be refined further in the future. The VIX, often called the ‘fear index’ or ‘fear gauge’, is roughly a measure of the implied volatility of the S&P 500 for the coming 30 days, as calculated from the price of publicly traded options on the S&P 500.