CBOE Nasdaq Volatility Index - VXN

DEFINITION of 'CBOE Nasdaq Volatility Index - VXN'

A measure of market expectations of 30-day volatility for the Nasdaq-100 index, as implied by the price of near-term 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 VIX, which measures implied volatility for the S&P 500. The Chicago Board Options Exchange (CBOE) launched the VXN January 23, 2001.
 

BREAKING DOWN 'CBOE Nasdaq Volatility Index - VXN'

The VXN 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 declined 15% by end-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 86.52 in October 2008, at the height of the global financial crisis, while the lowest level was 11.34 in March 2013. The average level for the VXN over this period was 28.26; by way of comparison, the average level for the VIX over this time frame was 21.71. These two volatility measures correlate closely, and they generally - but not always - trade in lockstep with each other.
 
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. The selected options are out-of-the-money Nasdaq-100 puts and calls centered on an at-the-money strike price.
 

RELATED TERMS
  1. VIX - CBOE Volatility Index

    The ticker symbol for the Chicago Board Options Exchange (CBOE) ...
  2. Nasdaq-100 Pre-Market Indicator

    An index of trading activity based on pre-market open prices ...
  3. NASDAQ-100 Equal Weighted Index

    The equal-weighted version of the NASDAQ-100 Index, which consists ...
  4. Implied Volatility - IV

    The estimated volatility of a security's price.
  5. Volatility Arbitrage

    Trading strategies that attempt to exploit differences between ...
  6. S&P/ASX 200 VIX (A-VIX)

    A real-time index that reflects investor expectations about volatility ...
Related Articles
  1. Options & Futures

    Determining Market Direction With VIX

    The CBOE's volatility index is a helpful market indicator. Learn how it can gauge the mood of the stock market.
  2. Investing Basics

    Understanding the CBOE Volatility Index

    The VIX shows the market’s volatility expectations for the next 30 days.
  3. Technical Indicators

    Using Moving Averages To Trade The Volatility Index (VIX)

    VIX moving averages smooth out the natural choppiness of the indicator, letting traders and market timers access reliable sentiment and volatility data.
  4. Investing

    Strategies To Trade The Nasdaq Index

    The Nasdaq is by far the best-known technology index in the world, and there are plenty of strategies to trade on the Nasdaq using ETFs and options.
  5. Options & Futures

    Introducing The VIX Options

    Discover a new financial instrument that provides great opportunities for both hedging and speculation.
  6. Options & Futures

    Option Volatility: Contrarian Indicator

    By John Summa, CTA, PhD, Founder of OptionsNerd.comLike with other measures of market sentiment, implied volatility (IV) can be used to gauge how extreme investor moods have become and to better ...
  7. Mutual Funds & ETFs

    How to Profit From Market Volatility Using ETFs (VXX, VIX)

    Volatility funds offer exposure to high greed and fear levels while avoiding predictions on price direction.
  8. Options & Futures

    The Volatility Index: Reading Market Sentiment

    Using the Volatility Index can be essential for investing success.
  9. Active Trading Fundamentals

    Tracking Volatility: How The VIX Is Calculated

    When market volatility spikes or stalls, newspapers, websites, bloggers and television commentators all refer to the VIX®. Formally known as the CBOE Volatility Index, the VIX is a benchmark ...
  10. Mutual Funds & ETFs

    Top 3 Inverse Volatility ETFs (XIV, SVXY)

    Learn about four inverse volatility ETNs and ETFs, and understand how the CBOE VIX indicator is calculated and used to hedge a portfolio.
RELATED FAQS
  1. What is the relationship between implied volatility and the volatility skew?

    Learn what the relationship is between implied volatility and the volatility skew, and see how implied volatility impacts ... Read Answer >>
  2. How does implied volatility impact the pricing of options?

    Learn about two specific volatility types associated with options and how implied volatility can impact the pricing of options. Read Answer >>
  3. What are the most effective hedging strategies to reduce market risk?

    Learn about different hedging strategies to reduce portfolio volatility and risk, including diversification, index options ... Read Answer >>
  4. Why is the Nasdaq more volatile than the NYSE?

    Learn about the stocks that are traded on the Nasdaq stock exchange, and discover the Nasdaq's relative volatility level ... Read Answer >>
  5. What is index option trading and how does it work?

    Learn about stock index options, including differences between single stock options and index options, and understand different ... Read Answer >>
  6. How is a short call used in a covered call option strategy?

    Learn how short calls are used in a covered call option strategy, what the risks and rewards of this strategy are, and how ... Read Answer >>
Hot Definitions
  1. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  2. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  3. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  4. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  5. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  6. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
Trading Center