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India VIX over 17 What It Means

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Post date: 03-Oct-2018

Take a look at India VIX today 03-Oct-2018 at 11.28 am:

India VIX 03-10-18

Update: India VIX date 04-Oct-2018 at 10.15 am:

India VIX 04-Oct-18

Source: http://www.moneycontrol.com/indian-indices/india-vix-36.html – Note India VIX changes as the trading progresses.

Stock markets are inversely proportional to India VIX. Here is the fall on Nifty on 04-Oct-2018 at 10.15 am:

NSE 04-Oct-18

Source https://money.rediff.com/index.html

Update: India VIX date 08-Oct-2018:

India VIX 08-Oct-18

Note see that intraday high was 21.76.

And NSE close on 08-Oct-2018:

Nifty close 08-Oct-18

Proof of India VIX is inversely proportional to Nifty and stock markets:

What is India VIX? India VIX is a volatility index based on the NIFTY Index Option prices. “VIX” is a trademark of Chicago Board Options Exchange, Incorporated (“CBOE”) and Standard & Poor’s has granted a license to NSE, with permission from CBOE, to use such mark in the name of the India VIX and for purposes relating to the India VIX. You can read about what is INDIA VIX and why it changes here.

Volatility Index is a measure of market’s expectation of volatility over the near term. Volatility is often described as the “rate and magnitude of changes in prices” and in finance often referred to as risk. Volatility Index is a measure, of the amount by which an underlying Index is expected to fluctuate, in the near term. In other words VIX is colloquially referred to as the fear index or the fear gauge.

So it is apparent that when VIX increases there is fear and volatility in the markets.

What happens when VIX increases?

When VIX increase it makes the option premiums costlier. This means that for the same time decay options premium will be higher if VIX increases compared to same time frame of expiry of the months when VIX was lower.

Does this effects both Calls and Puts?

Yes it effects both Calls and Puts. Both calls and puts will become costly to buy. This is the reason during these times selling of options becomes more attractive and trading volume increases. Traders who were sitting on the sidelines enter the markets seeing either huge volatility or increased option premiums.

What are the reasons for India VIX to increase?

It increases due to either bad business or political situations/news in the country.

Before the stock markets opened in India on 03-10-2018 this news had hit the markets:

1) The rupee weakened past the 73 mark against the US dollar for the first time
2) Crude oil prices surged near $85 barrel.

First one is bad news for the Indian economy as goods to be imported will get costlier from USA. Government and business both will have to pay more money for the same amount of good they used to buy when INR was 65 for USD. This is 15% increase. This increases fiscal burden for the government. To tackle this situation government increases taxes – both direct and indirect taxes to cover the extra fiscal burden. Because of worsening rupee everyone will suffer. Therefore stock markets goes down. Who will buy stocks when a bad news has hit?

Second one will make the everything made by Crude oil costlier like Gasoline (Used to fuel cars), Heating Oil (Used to heat buildings), Diesel Fuel, Jet Fuel etc. This will make transportation coslty. This in turn will make goods costly.

All of the above combined it is obvious that India VIX will increase.

What you can do as a trader?

If you are a speculative trader – a trader who trades on gut feelings – its better you do not trade when India VIX is above normal. Normal is anywhere between 12-15.

If you are taking advisory services – ignore there SMS. Stop taking tips. No one has ever become rich by taking tips.

If you are a technical trader make sure you respect your original plan of taking stop loss and profits.

Hedge your trades either its future or options. This will make sure you are in the game comfortably.


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About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

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