This simple chart provides the rules of thumb when thinking about the VIX. The VIX and stock index returns aren’t linearly related, but they show clear non-linearities and breakpoints that investors should know. If the VIX is at extremely high levels, you should buy a return to normality. If the VIX is at extreme lows, it is time to cut positions.
One key issue is that the VIX is not normally distributed; it has a high positive skew. It is more likely that the VIX will stay below 20, with only a few large moves that push it above 40, so it is critical to be ready for extremes.
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