CBOE Nasdaq Volatility Index (VXN)

The CBOE Nasdaq Volatility Index (VXN) is a measure of market expectations of 30-day volatility for the Nasdaq-100 index, as implied by the price of options on this index. The VXN index is a widely watched gauge of market sentiment and volatility for the Nasdaq-100, which includes the top 100 U.S. and international nonfinancial securities by market capitalization listed on the Nasdaq. The VXN is quoted in percentage terms, just like its better-known counterpart the CBOE Volatility Index (VIX), which measures 30-day implied volatility for the S&P 500. The Chicago Board Options Exchange (CBOE) launched the VXN on January 23, 2001.

The CBOE Nasdaq Volatility Index was introduced in 2001 as the technology, dot-com bubble was deflating. CBOE developed the VXN because of the massive divergence between volatility on the Nasdaq market and the broad U.S. equity market from early 1999 onward. The Nasdaq index soared 137% in a 15-month period from January 1999 to its peak level of 5,132 in March 2000, before plunging 52% to just below 2,500 by December 2000. The S&P 500, by comparison, only gained 26% from January 1999 to its March 2000 peak, and then declined 15% by the end of 2000.

The higher the VXN level, the greater the expectation for Nasdaq-100 volatility. Like the VIX, the VXN functions best as a “fear gauge” or indicator of market nervousness about the technology sector. Since its introduction, the highest level reached by the VXN was 80.64 in November 2008, at the height of the global financial crisis, while the lowest level was 10.31 in March 2017. The average level for the VXN over this period was 21.14. By way of comparison, the average level for the VIX over this time frame was 19.89. These two volatility measures usually correlate closely with the VXN generally showing slightly higher volatility.

The methodology used by the CBOE to calculate the VXN – whose value it disseminates continuously during trading hours – is identical to that used for the VIX. VXN components are near-term (with at least one week to expiration) put and call options, and next-term options in the first and second Nasdaq-100 contract months (options with more than 23 days and less than 37 days to expiration). The selected options are out-of-the-money Nasdaq-100 puts and calls centered on an at-the-money strike price.

Movement in the VXN represents the level of volatility implied from the price of the options used in the VXN index. Increases in the VXN and positive movement represents higher variances in the underlying securities’ price from their average. This usually occurs with uncertainty. Decreases in the VXN and negative movement represents lower volatility and a greater propensity for prices to trade in a tighter range. The VXN is generally followed along with the Nasdaq 100 to understand volatility in relation to positive or negative movements in the prices of the index.