What is the Cboe Nasdaq Volatility Index (VXN)?
The Cboe Nasdaq Volatility Index (VXN) measures 30-day volatility, and the options prices published on the Nasdaq 100 index reflect market expectations. Cboe Global Markets (Cboe) introduced the VXN in January 2001.
Understanding Cboe Nasdaq Volatility Index (VXN)
The top 100 U.S. and foreign non-financial securities by market capitalization listed on the Nasdaq are included in the VXN index, a closely monitored indicator of market mood and volatility. Like its more well-known sibling, the Cboe Volatility Index (VIX), which gauges the 30-day implied volatility of the S&P 500 index, the VXN is also quoted in percentage terms.
As the technology stock dot-com bubble was collapsing in 2001, the Cboe Nasdaq Volatility Index was launched. Because of the stark differences in volatility between the Nasdaq market and the larger U.S. equities market starting in early 1999, Cboe created the VXN.45 in
The Nasdaq had a 15-month surge of 157% from January 1999 to March 10, 2000, when it peaked at 5,048. However, by December 20, 2000, the index had fallen 52% to below 2,500. Six In contrast, the S&P 500 saw a 21% gain between January 1999 and its high on March 24, 2000, before seeing an additional 18% fall by the end of 2000.
An increased level of VXN indicates a higher likelihood of Nasdaq-100 volatility. Like the VIX, the VXN is helpful as a “fear gauge” or barometer of investor anxiety around the technology industry.
The September 2001 assault that resulted in a VXN of 71.72 was the highest level since its inception. Other noteworthy highs were 80.08 in March 2020, as the globe suffered from the global economic shutdown, and 79.16 in October 2008, at the height of the global financial crisis. The gauge dropped to levels in the 30s, indicating that the VXN increase resulting from the 2020 issue was only temporary. Conversely, the lowest recorded level occurred in March 2017 at 10.
Techniques and Interpretation for VXN
The VIX and VXN are calculated using the same process by the Cboe, whose value is continually disseminated during trading hours. Components of VXN include put and near-term call options (which have at least one week to expire) and next-term options (which have more than 23 days and less than 37 days to expire) in the first and second Nasdaq-100 contract months. The chosen options are calls and puts on the Nasdaq-100 that are out-of-the-money with a strike price that is in the money.901
The implied volatility derived from the pricing of listed options on the Nasdaq 100 index is reflected in the movement of the VXN. Positive movement and increases in the VXN indicate more significant price deviations from the average for the underlying stocks. Usually, this happens unpredictably.
VXN and negative movement declines are indicators of lower volatility and a stronger tendency for prices to trade in a narrower range. To comprehend volatility in connection to positive or negative swings in the values of the index, the VXN is often watched together with the Nasdaq 100.
Conclusion
- The market’s expectations for volatility in the Nasdaq 100 index over the next 30 days are reflected in the real-time Cboe Nasdaq Volatility Index (VXN).
- As a counterbalance to the VIX, which gauges S&P 500 volatility, the tech-heavy Nasdaq was developed to account for its frequent deviations from the overall market.
- Like the VIX, the VXN is calculated from the implied volatilities of options included in the Nasdaq 100 index. It is most useful as a “fear gauge,” or a barometer of market anxiety over the technology industry.
