The Cboe Nasdaq Volatility Index (VXN) measures the expected 30-day volatility of the Nasdaq-100 Index (NDX), conveyed by NASDAQ-100 Index option prices. The index is often referred to as the “Nasdaq’s Fear Gauge,” offering insights into investor sentiment and the perceived risk within the technology-heavy Nasdaq-100 index.
Just as the VIX reflects volatility expectations for the S&P 500, the VXN serves as a measure for volatility in tech and growth-oriented sectors.
The VXN is particularly sensitive to events impacting large tech companies such as Apple, Microsoft, Nvidia, Amazon, and Tesla, as these giants dominate the Nasdaq-100. It provides a forward-looking measure of volatility, helping investors gauge whether the market expects calm trading or sharp price swings. The index was introduced by the Cboe in 2001 and serves as a counter part to the more widely-known VIX.
Given the significant difference in volatility between the NASDAQ-100 and the S&P 500, the Cboe decided to develop the VXN. It is said that in 1999, the NASDAQ index skyrocketed 137% but then fell by around half by the end of 2000, while the S&P 500 only gained around 26% and then declined by approximately 15% by the end of 2000.
VXN Levels & Historical Trends
All-Time High: 80.64
Typical Range: 15 to 35
All-Time Low: 10.31
The VXN often spikes during earnings seasons, interest rate announcements, and major geopolitical developments affecting the tech industry. In general, volatility in tech stocks can be more pronounced than in other sectors.
How the VXN Works
The VXN is calculated using the prices of Nasdaq-100 options, reflecting the market’s expectation of volatility over the next 30 days. A high VXN suggests that investors are bracing for significant market movements (up or down), while a low VXN signals expectations for calmer trading.
Since the Nasdaq-100 is heavily weighted towards technology and growth stocks, the VXN tends to be more volatile than the VIX, especially when markets react to tech earnings, interest rate changes, or regulatory developments.
To calculate the VXN, the Cboe uses the same methodology as it does when calculating the VIX. The components of the VXN are near-term put and call options, with at least one week to expiration. There are also options for the first and second Nasdaq-100 contract months that have more than 23 days and less than 37 days until expiration. The selected options consist of out-of-the-money Nasdaq-100 puts and calls focused on an at-the-money strike price.
Other Volatility Indexes
VXN Outlook
We may expect Nasdaq-100 volatility to increase due to longer-term concerns about the sustainability of AI demand, economic strength, and rising bond yields. Analysts In addition, tech-sector volatility may increase depending on the Federal Reserve’s interest rate decisions.
Our View: Given the VXN is specific to the Nasdaq-100, there are certain factors that investors in tech stocks may need to watch more closely for as it could result in a spike in volatility. The US election and aftermath, tech earnings, and Federal Reserve rate decisions and commentary are some nearer-term factors tech investors should keep an eye on in regards to a rise in volatility.
Who Uses the VXN
The VXN is a valuable tool for several types of investors: Active traders, large institutional investors, and hedge fund managers
Portfolio Managers: Use the VXM to hedge against sudden market downturns using options or futures.
Institutional Traders: These traders use the VXN to gauge market sentiment and measure risk.
Risk-Averse Investors: Monitor the VXN to adjust exposure to equities during periods of elevated uncertainty.
Market Analysts: Track VXN movements as an indicator of sentiment shifts in global markets.
