VXN

Its job in a momentum trade

It confirms from the options market. Rising VXN backs a momentum short and falling VXN backs a momentum long.

What it measures

The annualized move in the Nasdaq-100 that index options are pricing for the next 30 days. It usually rises when the index falls and falls when the index rises, so the interesting moments are the ones when it does something else.

How it is computed

1. Cboe's VXN index, five-minute closes.
2. It prints from 9:30 to 16:15 Eastern and has no overnight session.

How to read it

• Price down with VXN up is an ordinary selloff.
• Price down with VXN flat or lower means options traders are not paying up for protection. Selloffs like that often run out sooner.
• Price up with VXN also up is unusual and says traders are buying protection into the rally.
• A sharp VXN spike that reverses within a few bars often marks the most fearful moment of a selloff.

How to trade it

• In a short, a VXN that stops rising while the price makes one more low is a reason to trim.
• In a long, a VXN that keeps falling confirms the move. A VXN that turns up while the price is still rising is an early warning.
• Use the level for context. A point of change means more when VXN is at 18 than when it is at 30.

What it cannot tell you

• It is computed from index options, not from NQ futures options, so it can differ from the implied volatility a futures platform shows.
• These reads are how the index is commonly used. They have not been tested here as trading rules.

Read it with

• VXN Distance: VXN minus its own eleven-bar average: whether fear is rising or fading right now.