If history is any guide, today’s drop in the CBOE NDX Volatility Index (VXN) signals that the tech-stock rout has largely run its course. Volatility climbed before the Nasdaq 100 (NDX) selloff this month, as some investors bought call options to chase the rally while others bought index vol for protection. Over the past two days, volatility has actually declined slightly even as the tech selloff deepened, which may indicate that demand for hedging has peaked.
Today, VXN dropped to 37, marking only the fourth time since 2001 that the gauge crossed below 40 when the NDX slumped more than 5% over the past week. According to Bloomberg’s TSIG function, the NDX rallied in all previous three occasions over the next 20 days, returning 4.3% on average.
Today, VXN dropped to 37, marking only the fourth time since 2001 that the gauge crossed below 40 when the NDX slumped more than 5% over the past week. According to Bloomberg’s TSIG function, the NDX rallied in all previous three occasions over the next 20 days, returning 4.3% on average.