Volatility Index India up by 4% in early trade: What is VIX — Explained

Volatility Index India meaning: The domestic markets have been witnessing strong jitters for the last two sessions. On both Wednesday and Thursday, the benchmark indices started their day’s journey in the green but couldn’t sustain the gain mainly due to heavy profit booking led by high volatility.

The India VIX index, which measures the market’s volatility, was at the day’s high level, gaining more than 4 per cent to 16.225 in the early morning trade on Thursday. Eventually, the index is in the red with a minor cut at 15.50 level.

What is VIX - Volatility Index India?

According to NSE, India VIX is a volatility index based on the NIFTY Index Option prices. From the best bid-ask prices of NIFTY Options contracts, a volatility figure (percentage) is calculated which indicates the expected market volatility over the next 30 calendar days.

The volatility Index is a measure of the market’s expectation of volatility in the near term. Volatility is often described as the “rate and magnitude of changes in prices", and, in finance, often referred to as risk.

VIX is also a measure of the amount by which an underlying Index is expected to fluctuate in the near term, and calculated as annualised volatility — denoted in percentage based on the order book of the underlying index options.

Factors that lead to volatility 

There are several factors that can contribute to market movements such as political and economic factors, sector and company performance. In today’s scenario, the volatility is caused by Covid-related concerns as coronavirus cases have risen in foreign nations like China and the US and its consequent impact on India.

Volatility is normal in the long run as stock prices go through periods of uptrends and downtrends depending on external and internal factors. These phases are unsettling but unavoidable.

India VIX is the moniker used for the volatility index in NSE. It considers five variables for calculation – strike price, the market price of the stock, expiry date, risk-free returns, and volatility.