Nadex Launches Volatility Sentiment Index Number

Sep 13, 2011, 09:38 ET from Nadex

CHICAGO, September 13, 2011 /PRNewswire/ --

The North American Derivatives Exchange (Nadex) has announced the release of a daily Volatility Sentiment Index (VSI) number for each of the key asset classes on which it bases its binary option contracts.

As the only CFTC designated exchange that is designed specifically for retail traders, Nadex has created a set of Volatility Sentiment Indices that offers a unique insight into the ordinary retail trader's current perception of market risk. While many other market volatility measures do a good job of measuring institutions' cost of insuring their portfolios, the Nadex VSI indicators aim to capture a daily snapshot of how the speculative trader views market volatility.

Specifically, Nadex calculates four separate Volatility Sentiment Indices. There is an overall Volatility Sentiment Index number, as well as class-specific Commodity VSI, FX VSI and Equity Index VSI numbers.

The VSI is simply a measure of the number of trades made by retail traders (that is, non-market makers) during the day that strongly back volatility[1], less the number of such trades that strongly sell volatility[2], expressed as a percentage of all such trades made that day. All trades made by retail traders in Nadex's intraday, daily and weekly binary options of the relevant asset class are included in the calculation.

By definition, a VSI number can vary between -100% and +100%. -100% would reflect a unanimous prediction of low volatility by retail market participants. +100% would indicate a unanimous prediction of high volatility by retail market participants.

In practice, the record high for the overall Volatility Sentiment Index since Nadex began calculating the figure in January 2011 has been +31%. The record low has been -26%.

[1] Defined as buying a binary with a price less than 25 or selling a binary with a price greater than 75.

[2] Defined as selling a binary with a price less than 25 or buying a binary with a price greater than 75. Any trades executed at prices between 25 and 75 are taken to be directional views rather than volatility plays.


Nadex, headquartered in Chicago, is subject to regulatory oversight by the CFTC. Through Nadex, traders can hedge against or speculate on price movements in the currency, commodity, event, and equity index markets.

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Futures and options trading involve risk and may not be appropriate for all investors.  The information herein is for informational purposes and is not a solicitation or offer to buy or sell any particular product listed on Nadex. Past performance is not necessarily indicative of future results.


Dan Cook
Director, Business Development