VIX, India Vix, India Vix Chart, India Vix Index, India Vix Futures, Volatility Index, Nifty Vix, NSE Vix, India Vix Options, Vix index india, NSE Volatility, Implied Volatility

India VIX is India’s volatility Index which is a key measure of market expectations of near-term volatility conveyed by NIFTY stock index option prices. This volatility index is computed by NSE based on the order book of NIFTY Options. For this, the best bid-ask quotes of near and next-month NIFTY options contracts which are traded on the F&O segment of NSE are used. India VIX indicates the investor’s perception of the market’s volatility in the near term i.e. it depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher the expected volatility and vice-versa. NSE will also start derivatives based on India VIX. Most probably NSE will come out with India Vix Futures first followed by India Vix options as had been done by the CBOE in the past.

India VIX – Live (Real Time) Chart and Quotes


India VIX Live Chart -

http://vix.co.in/indiavix/live-chart

Meaning of Volatility Index – Volatility Index (VIX) is a key measure of market expectations of near term volatility. As we understand, volatility implies the ability to change. Thus when the markets are highly volatile, market tends to move steeply up or down and during this time volatility index tends to rise. Volatility index declines when the markets become less volatile. VIX is sometimes also referred to as the Fear Index because as the volatility index (VIX) rises, one should become fearful or I would say careful as the markets can move steeply into any direction. Worldwide, VIX has become an indicator of how market practitioners think about volatility. Investors use it to gauge the market volatility and make their investment decisions.

It is important to understand that Volatility Index is different from a price index such as NIFTY or Sensex. The price index measure the direction of the market and is computed using the price movement of the underlying stocks where as Volatility Index measures the dispersion or variance or change and is computed using the order book of the underlying index options and is denoted as an annualized percentage.

VIX was first introduced by the Chicago Board of Options Exchange (CBOE) as the volatility index for the US markets in 1993 and it was based on S&P 100 Index option prices. The methodology was revised in 2003 and the new volatility index was based on S&P 500 Index options. CBOE also introduced VIX options and VIX Futures.

NSE has also started real time dissemination of India VIX which is one step towards introduction of India VIX derivatives. India VIX futures and India VIX options can be used to hedge the risk of market volatility.

Further Readings

India Volatility Index Calculations

Future of India Vix Futures

How India Vix is related to Nifty Options

Future of India Vix Futures

September 11, 2010

NSE is soon going to start India Vix Futures trading which is going to be the first instrument based on the volatility index for India. It’s a very good product and very relevant for the current stock market conditions and also very necessary for the indian markets to have a product based on the market volatility if we want to make India, a developed and matured market.

The contract specifications like contract lot size, tick values, margin requirements are not yet out but the real question is whether it is going to attract enough liquidity or not? Right now, there are only two exchanges which have successfully launched instruments on the volatility index in the world, VIX by CBOE and VSTOXX by Eurex. Other exchanges tried but failed to make it popular among the traders.

  • Germany’s stock exchange, DTB launched VOLAX futures on DAX in Jan 1998 but has to withdraw the product in the same year in Dec 1998. We may say markets at that time may not be ready to accept this product.
  • CBOE successfully launched VIX Futures in March 2004.
  • CBOE launched DJIA volatility Futures in Apr 2005, continued it for 4 years but has to delist it in Aug 2009.
  • Eurex lists futures on VDAX, VSMI, and VSTOXX in Sep 2005 but has to delist each one of them in Jul 2009. VSTOXX however was relaunched as mini again.
  • CBOE sucessfully lists VIX options.
  • CBOE lists Nasdaq and Russell 2000 volatility futures in Jul 2007 but failed and delist the contracts in Feb  2009  and Feb 2010 respectively.
  • Eurex lists options on VSTOXX in Mar 2010.

Looking at the history of volatility index products in the world arena, there are more failures then successes when it comes to instruments on volatility index and hence there is a huge question mark on whether IndiaVix is going to be successful or not. In India, high market volatility and absence of other developed products to hedge volatility risks may make IndiaVix a success. Some other exchanges are also coming up with volatility futures like VKOSPI futures, Japanese VIX futures. Only time can tell if these instruments can attract enough traders to sustain required liquidity and depth.

Further Readings

India Vix Basics

India Volatility Index Calculations

How India Vix is related to Nifty Options

India Vix vs Nifty

September 5, 2010

India Vix, India’s Volatility Index, shows negative correlation with the Nifty which makes it a great hedging tool. I tried to find out the correlation between these two indexes. For the year 2010, the correlation comes out to be -0.92. So, traders can almost perfectly hedge there positions in nifty. However, the hedging strategies can only be finalised once the Futures and Options in indiavix are introduced by NSE. It will depend on the lot size of india vix and other parameters like liquidity and margin requirements etc. The Vix options in US markets are great hit and i hope the same for indian markets aswell.

India Vix Historical Data Compared with Nifty Historical Data

India Vix Historical Data is available on the NSE website at http://www.nseindia.com/content/vix/hist_vix_data.htm

Correlation = – 0.92

Date Nifty India Vix Nifty Change India Vix Change
4-Jan-10 5232.2 23.73 NA NA
5-Jan-10 5277.9 22.21 0.87% -6.41%
6-Jan-10 5281.8 22.1 0.07% -0.50%
7-Jan-10 5263.1 22.29 -0.35% 0.86%
8-Jan-10 5244.75 22.41 -0.35% 0.54%
11-Jan-10 5249.4 22.45 0.09% 0.18%
12-Jan-10 5210.4 22.96 -0.74% 2.27%
…… …… …… …… ……
…… …… …… …… ……
30-Aug-10 5415.45 18.36 0.12% -6.47%
31-Aug-10 5402.4 18.47 -0.24% 0.60%
1-Sep-10 5471.85 16.7 1.29% -9.58%
2-Sep-10 5486.15 16.15 0.26% -3.29%
3-Sep-10 5479.4 15.86 -0.12% -1.80%
Date Nifty India Vix Nifty Change India Vix Change
4-Jan-10 5232.2 23.73 NA NA
5-Jan-10 5277.9 22.21 0.87% -6.41%
6-Jan-10 5281.8 22.1 0.07% -0.50%
7-Jan-10 5263.1 22.29 -0.35% 0.86%
8-Jan-10 5244.75 22.41 -0.35% 0.54%
11-Jan-10 5249.4 22.45 0.09% 0.18%

Further Readings

India Vix Basics

India Volatility Index Calculations

How India Vix is related to Nifty Options

Future of India Vix Futures

India Vix Calculations

Before we understand how India Vix (India Volatility index) is calculated, let’s understand what is volatility and what is volatility index.

Volatility refers to the amount of uncertainty or risk about the size of changes in a security or index value. A higher volatility means that a security’s value can potentially vary over a larger range of values. This means that the price of the security can change dramatically. A lower volatility means that a security’s value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.

The Volatility Index, sometimes referred as the fear index, indicates the volatility in the market at present or in the near future. India VIX indicates the market’s perception of the expected near term volatility. All securities portfolios as well as stock market indices are subjected to volatility and thus the studying them can be helpful because options prices are chiefly governed by the volatility in the market.

Calculations for India VIX: India VIX is a volatility index based on the index option prices of NSE’s benchmark index NIFTY. India VIX uses the computation methodology of CBOE, with suitable amendments to adapt to the NIFTY options order book. India VIX is computed using the best bid and ask quotes of the out-of-the-money near and mid-month NIFTY option contracts, which are traded on the F&O segment of NSE. There are several factors which are used to calculate the index. Some important ones are these –

1) Time to Expiry: Time to expiry of the options contracts of Nifty that are selected to calculate the index. The time to expiry is computed in minutes instead of days in order to arrive at a level of precision expected by professional traders.

2) Interest Rate: The NSE Mibor rate of relevant tenure (i.e 30 days or 90 days) is being considered as risk-free interest rate for the respective expiry months of the NIFTY option contracts.

3) The Forward Index Level: A methodology called the forward index level is being used to select the contracts which will be used to calculate the index. India VIX is computed using out-of-the-money option contracts. Out-of-the-money option contracts are identified using forward index level. The forward index level helps in determining the at-the-money (ATM) strike which in turn helps in selecting the option contracts which shall be used for computing India VIX. The forward index level is taken as the latest available price of NIFTY future contract for the respective expiry month.

4) Bid-Ask Quotes: The strike price of NIFTY option contract available just below the forward index level is taken as the ATM strike. NIFTY option Call contracts with strike price above the ATM strike and NIFTY option Put contracts with strike price below the ATM strike are identified as out-of-the-money options and best bid and ask quotes of such option contracts are used for computation of India VIX. In respect of strikes for which appropriate quotes are not available, values are arrived through interpolation using a statistical method namely “Natural Cubic Spline”. After identification of the quotes, the variance (volatility squared) is computed separately for near and mid month expiry.

5) Weightage: The variance is computed by providing weightages to each of the NIFTY option contracts identified for the computation, as per the CBOE method. The weightage of a single options contract is directly proportional to the average of best bid-ask spread of that option contract and inversely proportional to the option contract’s strike price.

Finally, the variance for the near and mid month expiry computed separately are interpolated to get a single variance value with a constant maturity of 30 days to expiration. The square root of the computed variance value is multiplied by 100 to arrive at the India VIX value. In a nutshell, from usage point of view, higher the vix index value, higher the volatility.

Further Readings

India Vix Basics

How India Vix is related to Nifty Options

Future of India Vix Futures

Implied Volatility Calculator

February 28, 2011

Implied Volatility is the volatility implied by the market value of the options contract based on options pricing model. The below calculator is based on the Black Scholes european options pricing model. This calculator is appropriate for calculating implied volatility of the nifty options.

The Options Calculator below calculates the options contract pricing based on the Black Scholes options pricing model. This model is appropriate for nifty options as these contract are european options.

Since Diwali (Nov 5), it has been constant downtrend in the market bringing fear and anxiety among the investors. Ireland, China along with some consolidation on account of profit booking is to be blamed. Nifty plunged over 6.5% causing india vix to rise by over 12% in 9 trading days.

vix and nifty since diwali

Following the footsteps of NSE, BSE has come up with the SENSEX Realized Volatility (REALVOL) Index similar to NSE’s India Vix which provides market participants with an accurate measure of the historic volatility of the SENSEX over fixed one, two and 3-month time horizons, which are synchronized with BSE’s 1, 2, and 3-month futures & options expiration cycles. Each index is reset at the end of its respective cycle.

The SENSEX REALVOL will be a useful tool for option writers attempting to manage their risk, as their P&L is driven by the difference between realized volatility and implied volatility over the life of options written. Products based on the REALVOL family of indices will allow Indian traders to hedge against sudden price movements (i.e. reducing Gamma exposure) and to take directional bets on the realized volatility of the SENSEX.

Read More on BSE Website – http://www.bseindia.com/realvol/