What Is the Cboe Nasdaq Volatility Index (VXN)?
Let me explain the Cboe Nasdaq Volatility Index, or VXN, directly to you. It's a measure of what the market expects in terms of 30-day volatility for the Nasdaq 100 index, drawn straight from the prices of options on that index. Cboe Global Markets launched it back in January 2001, and it's been a key tool ever since.
Key Takeaways on the VXN
You should know that the VXN is a real-time index showing the market's outlook on volatility for the Nasdaq 100 over the next 30 days. Think of it as the Nasdaq's version of the VIX, which tracks the S&P 500, because the tech-focused Nasdaq often moves differently from the wider market. We calculate it using implied volatilities from Nasdaq 100 options, and it works well as a 'fear gauge' to spot nervousness in the tech sector.
Understanding the Cboe Nasdaq Volatility Index (VXN)
As you dive into this, the VXN is a go-to indicator for market sentiment and volatility tied to the Nasdaq-100, which covers the top 100 non-financial U.S. and international stocks by market cap on the Nasdaq. We quote it in percentages, just like the VIX does for the S&P 500's 30-day implied volatility.
Cboe rolled out the VXN in 2001 amid the dot-com bubble's collapse, when Nasdaq volatility was wildly different from the rest of the U.S. equity market starting in early 1999. For context, the Nasdaq jumped 157% from January 1999 to its peak of 5,048 on March 10, 2000, then dropped 52% to under 2,500 by December 2000. The S&P 500, meanwhile, only rose 21% to its peak on March 24, 2000, and fell 18% by year's end.
A higher VXN means the market anticipates more volatility in the Nasdaq-100. Like the VIX, it's your indicator of fear or unease in the tech world. Since launch, its highest point was 71.72 in September 2001 after 9/11, with other spikes at 79.16 in October 2008 during the financial crisis and 80.08 in March 2020 amid the pandemic shutdown. That 2020 peak faded quickly, dropping back to the 30s. The lowest? 10.31 in March 2017.
VXN Methodology and Interpretation
Here's how it works: Cboe uses the same method for the VXN as for the VIX, updating its value continuously during trading hours. It pulls from near-term puts and calls (at least one week to expiration) and next-term options in the first and second Nasdaq-100 contract months—those with 23 to 37 days left. These are out-of-the-money options centered on an at-the-money strike.
When the VXN moves, it's reflecting implied volatility from Nasdaq 100 options prices. An increase signals higher expected price swings from the norm, often due to uncertainty. A decrease means lower volatility, with prices likely staying in a narrow range. You should track the VXN alongside the Nasdaq 100 to gauge how volatility ties into the index's ups and downs.
