Thread: India Volatility Index (India VIX) ๐งต
(1) Volatility Gauge:
India VIX stands for India Volatility Index.
It's a gauge of market expectations for short-term volatility.
In simpler terms, it tells us how much traders expect the Nifty50 Index to swing over the next 30 days.
India VIX stands for India Volatility Index.
It's a gauge of market expectations for short-term volatility.
In simpler terms, it tells us how much traders expect the Nifty50 Index to swing over the next 30 days.
(2) Calculating India VIX:
This index is calculated using the Black & Scholes Model.
Factors considered: strike price, stock market price, time to expiry, risk-free rate, and volatility.
It's been around since 2008 but is a concept originating from the CBOE.
This index is calculated using the Black & Scholes Model.
Factors considered: strike price, stock market price, time to expiry, risk-free rate, and volatility.
It's been around since 2008 but is a concept originating from the CBOE.
(3) The Expectation Game:
India VIX signifies the expected annual change in NIFTY50 over 30 days.
If India VIX is 15, it means traders expect 15% volatility for the next 30 days.
India VIX signifies the expected annual change in NIFTY50 over 30 days.
If India VIX is 15, it means traders expect 15% volatility for the next 30 days.
(4) Not Market Index:
Don't confuse India VIX with Market Index.
VIX measures market volatility, not market direction.
Don't confuse India VIX with Market Index.
VIX measures market volatility, not market direction.
(5) Low vs. High VIX:
- Low VIX = Confidence & Stability
- High VIX = Volatility & Uncertainty
When VIX is high, major market moves are often on the horizon, and ranges can widen quickly, as seen during the sub-prime crisis when VIX hit 60, causing erratic market behavior.
- Low VIX = Confidence & Stability
- High VIX = Volatility & Uncertainty
When VIX is high, major market moves are often on the horizon, and ranges can widen quickly, as seen during the sub-prime crisis when VIX hit 60, causing erratic market behavior.
(6) The Connection:
Volatility and India VIX have a positive correlation.
When VIX is high, so is volatility.
Conversely, when it's low, you can expect a relatively stable market.
Volatility and India VIX have a positive correlation.
When VIX is high, so is volatility.
Conversely, when it's low, you can expect a relatively stable market.
(7) The COVID-19 Effect:
Before the pandemic, India VIX stayed below 30 for years.
When COVID-19 hit, it soared past 30 and even touched 85.
The result?
Indian equity markets lost almost 40% of their value.
Before the pandemic, India VIX stayed below 30 for years.
When COVID-19 hit, it soared past 30 and even touched 85.
The result?
Indian equity markets lost almost 40% of their value.
(8) The Sentiment Barometer:
India VIX is a key indicator of market sentiment.
It doesn't predict market direction but highlights market mood.
India VIX is a key indicator of market sentiment.
It doesn't predict market direction but highlights market mood.
(9) Option Pricing:
India VIX also has a significant impact on options pricing.
Higher VIX means higher expected volatility, which makes options more expensive.
Lower and stable VIX range signals lower volatility expectations, so options become cheaper.
India VIX also has a significant impact on options pricing.
Higher VIX means higher expected volatility, which makes options more expensive.
Lower and stable VIX range signals lower volatility expectations, so options become cheaper.
(10) High VIX = Risky Options:
When VIX is high, option writers face unlimited risk with limited rewards (the premium they receive).
A seemingly safe option can quickly turn against them.
When VIX is high, option writers face unlimited risk with limited rewards (the premium they receive).
A seemingly safe option can quickly turn against them.
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