If India VIX is Low Options Premium Will Also be Low

First what is India VIX Index?

Volatility Index is a measure of market’s expectation of volatility over the near term. Volatility is often described as the “rate and magnitude of changes in prices” and in finance often referred to as risk. Volatility Index is a measure, of the amount by which an underlying Index is expected to fluctuate, in the near term, (calculated as annualised volatility, denoted in percentage e.g. 20%) based on the order book of the underlying index options.

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 (%) is calculated which indicates the expected market volatility over the next 30 calendar days. India VIX uses the computation methodology of CBOE, with suitable amendments to adapt to the NIFTY options order book using cubic splines, etc.

Source:
https://www1.nseindia.com/products/content/equities/indices/india_vix.htm

After a lot of months INDIA VIX has come to a normal level. Normal level of INDIA VIX is considered between 10 and 15. Anything above 15 is considered high.

Look at INDIA VIX on 02-Aug-21 at 7.50 pm:

India VIX 02-Aug-21

And then look at how it remained near 25 for last 1 year which is considered high:

India VIX Aug 20 to Aug 21

Look at Max chart of India VIX – you can clearly see that it remains below 15 most of the times except for Mar-Apr 2020 to June 2021. I think the reason is coronavirus scare.

Max chart India VIX Aug 21

Now that the vaccine is available the stock markets have gone up and the INDIA VIX has gone down.

INDIA VIX an stock markets are inversely proportion to each other. See how in the last one year BSE SENSEX has gone up while INDIA VIX has gone down.

BSE Sensex Aug 20 to Aug 21

More in INDIA VIX

If you do not know, option premiums are heavily dependent on INDIA VIX.

You can see India VIX here:

https://www.moneycontrol.com/indian-indices/india-vix-36.html

Or just Google INDIA VIX.

What happens if INDIA VIX drops?

Volatility in the stock markets will be low but option premium will also be low. So option seller’s return on investment will decrease. To increase the return on investments you can hedge your trades.

To learn hedging and managing option selling you can do my Conservative Options Course and Bank Nifty Weekly Options Course.

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Articles on my site on India VIX:

https://www.theoptioncourse.com/how-india-vix-is-calculated-and-what-to-expect-after-seeing-high-or-low-india-vix/
https://www.theoptioncourse.com/india-vix-over-17-what-it-means/
https://www.theoptioncourse.com/union-budget-2021-india-vix-will-crash/
https://www.theoptioncourse.com/sudden-drop-of-india-vix-means-what/
https://www.theoptioncourse.com/india-vix-surges-26-74-caution/
https://www.theoptioncourse.com/impact-on-nifty-bank-nifty-india-vix-due-to-general-elections-2019/
https://www.theoptioncourse.com/what-is-india-vix-and-why-it-changes/
https://www.theoptioncourse.com/india-vix-increasing-by-22-in-a-single-day-is-not-good/

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