The VIX or Volatility Index is an index measured by the CBOE and signifies the 30-day volatility expectation of the market. This is calulated from a range of S&P 500 index options including both calls and puts, making the VIX a popularly used indicator for market particpation risk, and is also referred to as the investor fear index.
Effectively, the VIX is an interpretation of the risk of holding an at-the-money option on the S&P500 for 30 days, although as with any forward-looking calculation, the final figures can of course differ.
Effectively, the VIX can be applied directly to the S&P for potential profit; if the S&P stood at 1000 and the VIX at 12, then this would imply a 1% move in the S&P over the next month, therefore, an exposure to S&P movements from a call/put would mean an anticipated risk of 1% in or against your favour since the VIX does not predict the direction of the S&P but merely its changeability, therefore, using the VIX in tandem with trend-recognising indicators such as the MACD or possibly CCI can offer a good insight into the VIX.
Recently, the VIX has undergone some significant changes in the way it is calculated, and is using a new pricing model that differs from the Black-Scholes model of options pricing, although the CBOE have claimed that this change will not affect the way in which the VIX fundamentally works, this is possibly due to the criticisms that the VIX has faced since its inception in 1993 regarding the overstated relevance to individual equities, and this new method of calculation is aimed at bringing greater sentiment precision to the VIX.