What is India VIX in Stock Market?
3 December, 2024
Synopsis
Interest rates, time to expiry, bid-ask price, and forward index level are four critical elements to consider when calculating the India VIX index.
A high India VIX index indicates more significant stock price fluctuations, while a low index indicates stable market conditions.
India VIX can be an alien term for many new investors. However, it is a vital metric for planning your investments. India VIX or Nifty VIX is a measure of the expected volatility in stock prices, over the next 30 days. It is implied volatility calculated form options on Nifty 50 index. The option prices, strike price, duration etc are put in Black Scholes formula to get the value of Implied Volatility. For example, if the value of India VIX currently is 15 then this means expected volatility in stock prices over the next 30 days is likely to be 15% on annual basis.
What is India VIX Index in Stock Market and Why is it Important for Investors?
India VIX is a stock market volatility tracker with a special focus on NIFTY 50. It is calculated via bid analysis and near-next-month ask prices for NIFTY options contracts across the NSE. India VIX index tracks market fluctuations over a 30-day period and can be interpreted in two distinct ways.
High India VIX index: It signals higher stock price fluctuation, hinting at market uncertainty.
Low India VIX index: It signals low market volatility and, hence, a relatively more stable stock market.
What Elements Are Considered While Calculating India VIX Index?
There are four major elements impacting India VIX Index, namely time to expiry, forward index level, interest rate, and Bid ask. Let's understand each of them in detail.
Time to Expiry: It is the time to expiry of options contracts whose prices or premiums will be used for calculating implied volatility.
Interest Rate: It is the risk free rate of interest.
Strike price: This is the price at which the option contracts can be exercised.
Current value: Current value or price of the asset (Nifty 50 index in this case).
How To Plan Your Trade Effectively Using the India VIX Index?
The value of India VIX may give you an idea of the risk or uncertainty that is prevailing in the market. A higher value of VIX indicates to higher risk or volatility. A lower value indicates to lower risk or volatility.
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*Disclaimer: Terms and conditions apply. This is an information communication from HDFC Bank and should not be considered as a suggestion or recommendation for investment. Investments in securities market are subject to market risks. Read all the related documents carefully before investing.
