VIX in India is a measure of implied (future) volatility for the Nifty. The features of VIX are as appended below:
- Indian VIX can be charted on a graph.
- It can range from ‘0’ to well over 60
- Panic generally sets in when the level rises to more than 30 levels and it rarely crosses 40 level. When the volatility index reads near or above 30, the panic has reached a frenzy. This combined with the Nifty reaching a demand zone could indicate a bottom in price.
- When Nifty is in bearish mode, we observe that VIX India will rise dramatically which shows the fear level.
- The opposite is also true, when prices are rising in a bull market, the volatility drops as investors become complacent. If the India VIX drops below 20 and price reaches a supply zone, there may be a selloff soon.
- The volatility index will move opposite of price, but volatility can also rise with a fast upward price movement or fall with a slow downward price drop and thus it can also fail and it should not be exclusively used to determine the trend in the market and must be seen in conjunction with other technical parameters.
Who Should Follow Volatility Index?
- It is good for a long term investor who is trying to identify changes in trend.
- It is also an excellent tool for the options trader as volatility is a major factor which influences option premiums. Changes in volatility can disrupt the unsuspecting options trader and can cause losses even when the direction chosen was correct.
