Nifty fear gauge VIX shoots past 20. What’s spooking traders on Dalal Street?
economictimes.indiatimes.comDalal Street's volatility indicator India VIX, also known as the fear index, on Monday zoomed 16% to fly past the 20-mark for the first time in the last one year.
After suddenly crashing 20% to sub 10-levels on April 23, the index has been rising non-stop. In the last 13 sessions, the index has doubled.
Amid investor concerns related to how a low voter turnout can impact the outcome of the Lok Sabha elections, Sensex has lost over 2,000 points in May.
Typically, when India VIX is close to the 10-12 range, it is considered low and a VIX level of 20 or above is considered high. A high VIX indicates a rise in fear and expectations of increased volatility ahead. If VIX goes down, option premiums become cheaper.
«VIX's behaviour now has a lot of similarities to the period shortly before the 2019 electoral results announcement. Then too, markets had come off peaks in March, and VIX shot up to 28.6. The main difference is that before this, VIX was in a 20-14 range during the previous 6 months, pointing to volatility expectations being reasonably high for an extended period,» said Anand James, Chief Market Strategist, Geojit Financial Services.
Also read | Lok Sabha election or China effect? 4 reasons why Sensex has fallen 2,000 points in May
The rate of change of VIX is high enough to assure that we will be seeing a reversal in VIX that could curb wild moves in Nifty for the rest of the May series, especially as the electoral outcome would be known only after May expiry. That we have three contracts, by way of May
