VXN (CBOE Nasdaq Volatility Index)

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Cboe Nasdaq Volatility Index (VXN): What It Means and How It Works

Key takeaways

  • The VXN measures the market’s expectation of 30‑day volatility for the Nasdaq‑100 index, derived from option prices.
  • It was introduced in 2001 to reflect the tech‑heavy Nasdaq’s volatility profile, which can diverge significantly from the broader market’s VIX.
  • Like the VIX, the VXN is best used as a “fear gauge”: higher values signal greater expected volatility and market nervousness about technology-sector stocks.

What the VXN is

The Cboe Nasdaq Volatility Index (VXN) is a real‑time index that translates prices of Nasdaq‑100 options into an annualized percentage representing expected volatility over the next 30 days. It is quoted in percentage points (for example, a VXN of 25 implies an expected annualized volatility of about 25%).

Why it exists

The VXN was created to capture volatility specific to the Nasdaq‑100, a tech‑heavy subset of large‑cap stocks that can move differently from the broader market. Significant divergence during the late 1990s dot‑com boom and subsequent bust highlighted the need for a dedicated Nasdaq volatility measure.

Brief historical context

  • Nasdaq experienced extreme moves around the turn of the century: a rapid rise through early 2000 followed by steep declines.
  • The VXN has spiked during major market shocks (examples include September 2001, October 2008, and March 2020) and reached lows in calmer periods (notably March 2017).

How the VXN is calculated

  • The VXN calculation uses the same methodology as the VIX.
  • It combines prices of near‑term and next‑term Nasdaq‑100 index options: selected out‑of‑the‑money puts and calls centered on an at‑the‑money strike.
  • The options used generally cover expirations with more than 23 days and fewer than 37 days remaining.
  • The index is continuously updated during trading hours and reflects implied volatility embedded in option prices.

How to interpret VXN movements

  • Rising VXN: market participants expect larger price swings in the Nasdaq‑100 over the next 30 days—often associated with uncertainty or fear.
  • Falling VXN: expectations of smaller price swings and calmer markets.
  • Traders and investors often compare VXN movements with Nasdaq‑100 price action to gauge whether rising volatility accompanies declines (a common sign of fear) or rallies.

Practical uses

  • Sentiment gauge: monitor investor nervousness specific to tech and growth stocks.
  • Risk management: inform hedging decisions using options or volatility products.
  • Trading and strategy: used by volatility traders, options strategists, and portfolio managers to size positions or implement volatility-based trades.

Notable historical levels

  • Significant spikes: around major crises (e.g., 2001, 2008, 2020).
  • Lowest recorded readings occur during extended calm markets (for example, low teens).

Conclusion

The VXN is a focused volatility index for the Nasdaq‑100 that translates option prices into a short‑term volatility forecast. It functions as a sector‑specific fear gauge and is useful for assessing market sentiment, informing hedging decisions, and designing volatility‑sensitive trading strategies.