VIX Reaches Alarming Levels, Fear Jumps to Highest Level in 15 Months

India VIX is a volatility index, It is the expected annual volatility in the market over the next 30 days, The India VIX was introduced in 2008, It is an index which represents the expected annual volatility for the benchmark indexes, NIFTY 50 over the next 30 days, It is based on the NIFTY 50 option contracts for the next 30 days, This index represents the level of fear and risk in the market, Thus it is also called as the fear index.

Interpretation of India VIX

Let’s take a scenario where India VIX is at 18% and NIFTY 50 closed at Rs.20,000, This data means that on the basis of NIFTY 50 option contracts for the next 30 days, the estimated volatility is 18% both upside and downside levels, Hence, the calculations are that the annual downside would be at 20,000-(18%* 20,000) = 16,400 and the upside levels to watch for would be at 20,000+(18%*20,000)=23,600. So markets are expecting a range of 16,400-23,600 for the Index NIFTY 50.

The key point to understand about VIX is that it is a leading indicator which is basically calculated on an Index and the most important point is that the VIX is not used for predicting the direction of the market, It helps in indicating the volatility in the market.

India VIX Jumps to highest level in 15 months

The volatility index has surged more than 70% in the last 10  trading sessions, It has jumped to the highest level in 15 months and has made a new 52-week high of 18.30 today, this 15-month high mark came just weeks after VIX touched its 52 week low falling nearly 20% on April 23, Currently, VIX is at 17.30.

The more the India VIX, the more the volatility in the market, the major reason for this increase in volatility is the ongoing seven-phased Lok Sabha elections in India, the degree of nervousness is to be increased with elections proceeding ahead phase by phase.

Conclusion: The fear index tends to rise before major events like the general elections and budget, given the growing international unpredictability and the ongoing general election in India, this volatility is expected to continue until we get the outcome of the general elections, this rise is well aligned with the past election trends in VIX, During 2019 elections it saw a 150% jump from 12 to 30 and in 2014 elections it saw a 200% jump from 13 to 39, based on this data we can expect the levels of VIX to rise further ahead till the outcome of the general elections.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.