CBOE Nasdaq Volatility Index - VXN

  

Categories: Charts, Trading

Volatility is a measure of how much something moves around. If your friend Greg is volatile, it means he's a moody guy. If you have a volatile chemical, it means it might explode. For the CBOE NASDAQ Volatility Index, it lets you know how much the NASDAQ 100 index is moving around. (The NASDAQ 100 tracks the major companies on the NASDAQ market.)

The index is distributed by CBOE Global Markets and calculated continuously during trading hours. The higher the level, the higher the volatility, meaning the more uncertain the market (the more prone it is to big swings). The figure is calculated using data from put and call options.

As an example of the kinds of numbers the index gets, the highest level (as of 2018) was 80.64, which occurred in November 2008...the height of the financial crisis. Stocks were bound for big swings with the market in turmoil. The lowest level was 10.31, hit in March of 2017.

Related or Semi-related Video

Finance: What is Beta?22 Views

00:00

Finance allah shmoop What is beta it's Volatility That's it

00:07

here's a stock chart reflecting the performance of a highly

00:09

volatile stock plus size manikins ink and here's A teen

00:13

t stock chart The last twenty years Yeah Whole lot

00:16

less volatile Eighteen t stock has left beta then p

00:20

s m so here's p s m mapped over the

00:23

s and p five hundred Gopi sm is about twice

00:26

a cz volatile Is the market here like on days

00:28

The markets up one percent p s m is up

00:31

two percent on days The markets down four percent p

00:33

s m is crushed down eight percent So you'd say

00:36

it has a beta relative to the s and p

00:38

five hundred of two point Oh or two acts So

00:41

the hammer this home let's do advanced math here So

00:44

if any given day the marks up one point two

00:46

percent has bit of two point Oh you'd expect p

00:48

s m to be up two point four percent and

00:51

same deal on the downside Yeah All right So what

00:53

gives a company high beta Well simply put uncertainty Some

00:57

companies have products in the pipeline Where the broader market

01:00

has a lack of certainty that buyers by the millions

01:04

anyway will want that product sort of the opposite of

01:07

coca cola Like what are the odds that buyers will

01:09

still want diet coke next year Yeah pretty good odds

01:13

but plastic manikins modeling extra large kimonos away Less certainty

01:19

So the company may end up awesome and ruling the

01:21

world Or it may end up being melted down for

01:24

spare parts Yeah Making newsman drone helicopter thing right Well

01:28

what else creates beta Well leverage or debt Some companies

01:32

have tons of cash Others have tons of debt of

01:34

company a is trading for one hundred bucks a share

01:37

and it has no debt and ninety five dollars a

01:40

share in cash Will The market is valuing the operations

01:44

of that company and only five bucks a share So

01:47

the operations could do awesome Or they could do terrible

01:50

and nobody's going to care Big web stock goes to

01:52

one hundred hundred five Ninety five Something like that big

01:56

No big deal So yeah i think about that The

01:58

value The operations could increase one hundred percent and be

02:02

worth five dollars more than the company's worth one hundred

02:04

Five bucks No big deal All right but what about

02:06

company b It has one hundred million box in ibadan

02:09

or cash flow or cash earnings and five hundred million

02:13

dollars in debt Well it trade today at eight times

02:16

ebitda calculated as eight times that hundred million figure Then

02:20

subtracting the five hundred million dollars in debt Well the

02:23

company would be valued at three hundred million dollars That

02:27

would be its market cap But what if it's new

02:28

product is likely to be loved and people get excited

02:31

about it and its operation suddenly get valued at twelve

02:34

times even thought instead of just eight While the math

02:37

goes like twelve times than one hundred million in cash

02:40

flow for one point two billion then you subtract the

02:43

five hundred million dollars in debt And that gets you

02:45

a market value for the whole company of seven hundred

02:48

million dollars So think about it The multiple of even

02:50

da being paid by investors went up just fifty percent

02:53

from eight to twelve But the stock market value of

02:56

this company went up well over one hundred per cent

02:58

In fact one hundred thirty three percent Why so much

03:01

More volatile or so much more beta Yeah leveraged debt

03:04

gasoline on the fire It can be great but when

03:08

things go the other way it can leave you feeling 00:03:10.49 --> [endTime] you know like a dummy

Up Next

Finance: What are Theta and Theta Decay?
9 Views

Theta refers to either the amount of time left on a contract, or the sorority girl asking if you want to come to her mixer. The answer will always...

Find other enlightening terms in Shmoop Finance Genius Bar(f)