India VIX: Volatility Index

>> Saturday, November 1, 2008

VIX is a measure of the implied volatility of Nifty 50 Index Option prices over the next 30 day period. It is an estimate of investor sentiment and is a helpful indicator of the amount the market is expected to "fluctuate" in the near term. Higher the implied volatility, higher the India VIX value and vice-versa.

How to interpret VIX?

The VIX is quoted in terms of percentage points and translates, roughly, to the expected movement in the Nifty 50 Index over the next 30-day period, on an annualized basis. For example, if the VIX is at 15, this represents an expected annual change of 15%; thus one can infer that the index option markets expect the Nifty 50 to move up or down \frac{15%}{\sqrt{12\ months}} = 4.33% over the next 30-day period. That is, if, for example, the Nifty 50 is currently at 100, then the estimated 30-day change in the Nifty 50 will be within 4.3 points up or down.

Interpret VIX on graph.
Click here.