I have read the CBOE's white paper on the VIX and a lot of other things, but I need to honestly say, I don't really get it, or I am missing something important.
In semi-layman's terms, is the VIX simply the a measurement of the volume of protective options bought?
That is, individual contract volatility increases when the option has been bid up by buyers due to desirability. One contract alone only marginally increases the overall market volatility, but if all contracts were bid up, then the entire VIX would be recalculated (on the fly) to reflect the higher value of protective options as a speculative/hedge solution.
Do I understand this correctly, or do I really need to put more time into understanding that formula which comprises the VIX?