The Volatility Index (ViX) is a measure of the market’s anticipation of near-term volatility. The rate and magnitude of price movements define the volatility. It is sometimes referred to as risk in financial terms.
The Volatility Index is a measure of the amount by which an underlying Index is likely to fluctuate in the near future. Analyst use % to quote VIX. This shows annualized volatility implied from option prices.
Analysts use the Black & Scholes (B&S) Model to calculate the India VIX value. The Black-Scholes model requires five input variables: option strike price, current stock price, time to expiration, risk-free rate, and volatility.
The India VIX is calculated using five factors: strike price, stock market price, time to expiry, risk-free rate, and volatility. Using the best bid and ask quotes of out-of-the-money, current, and near-month Nifty option contracts, the VIX calculates the volatility expected by market participants.
For portfolio managers and mutual fund managers, the India VIX index is also beneficial. The rise and fall of the VIX assist them in determining when to invest in high beta or low beta equities to maximize their returns.
The India VIX is also beneficial to option traders. Given the market volatility, the volatility index may prove to be a good indicator for them to decide whether to purchase or sell an option. Buyers profit the most in a dynamic market, while sellers benefit the most in a less volatile market. Generally, Indian VIX above 20 considers is a dangerous sign for the markets.
What is the connection between India VIX and Nifty?
The India VIX has a significant inverse relationship with the Nifty. When the VIX in India falls, the Nifty rises, and vice versa.
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