What it means
It is quoted as a yearly percentage. A low reading means options are cheap and traders expect calm; a rising one means they are paying up for protection. It usually moves opposite to the Nifty, jumping when the market falls sharply, and tends to climb ahead of big events such as elections and the Union Budget.
Example
A reading of 15 implies an expected move of about 15% over a year, which is roughly 4.3% over a month.
In practice
India VIX tells option traders whether options are expensive or cheap. When it is high, premiums are rich, which favours sellers and makes buying costly. When it is low, options are cheap but large moves are not expected.
Other traders use it as a mood gauge and to set expectations: a higher reading means wider daily ranges, so stops need more room and positions should be smaller.
What to watch for
A low reading is not a promise of calm; markets have fallen sharply from quiet periods. The index measures the expected size of moves, not their direction, and it can rise while the Nifty is rising too.
Related terms
4 terms- VolatilityHow much and how fast price moves; high volatility means bigger swings in both directions.
- Nifty 50The benchmark index of India's National Stock Exchange, tracking 50 of the largest companies listed on it.
- OptionA contract giving the right, but not the obligation, to buy (call) or sell (put) at a set price before a set date.
- Put-call ratioPCROpen interest (or volume) in put options divided by that in call options, used as a rough gauge of market mood.