The India VIX or volatility index ? a gauge of market?s expected volatility over the next one month ? extended its gains for the week as it closed above the 25 mark. The index not only gained 5% in the week so far but has also reached its highest level since June 2010.
Ideally, from its inherent ability to reflect the uncertainty among traders and historical moves, the index seems to be standing at a crucial juncture; any rise above this mark indicate a further plunge for the market going forward, feel a section of derivative experts.
According to Savio Shetty, research analyst ? institutional derivatives, Prabhudas Liladhar, ?If we compare the market fall of about 1,000 points since early November till now, the VIX has only moved from 21.53 to 25. Such movement does not necessarily reflect the traders? sentiment efficiently.?
This is because the calculation of VIX considers the pricing of mid as well as far month in-the-money options, which has lesser liquidity at the moment. ?Hence, it requires to be seen whether the VIX manages to sustain its gains and reflects the market uncertainty efficiently after breaking the range that defined its move since September 2010,? said an expert.
Further, as the VIX is calculated considering the order book of mainly out-of-the-money options, it acts as a direct indicator of the volatility in the options market. It bears more significance when it is interpreted in conjunction with the Put Call Ratio (PCR). This is because, typically when the market shows a clear down trend , more calls are written which pushes the PCR down while the volatility rises. Since the PCR for the February series remained below a key level of 1 consecutively for about a week, it definitely indicated pessimism among traders.
Meanwhile, the movement in the open interest of Nifty February options indicates traders are hopeful of a respite in terms of a pullback once the Nifty touches 5,200 mark. If the open interest of in-the-money 5,200 calls sustain a buildup in the coming session, the Nifty indeed could see some bounce.
Sensex dips 183 points
The BSE benchmark Sensex on Wednesday fell further, losing 183 points to close at 17,592.77, as investors continued to sell stocks on a string of negatives ranging from fears of interest rate hike impacting corporate profits to widening of the probe in 2G spectrum scam.
BSE benchmark index Sensex, which had lost 262 points in the previous session, declined another 182.93 points to close at 17,592.77, a level last seen in early July last year. It touched the day?s low of 17,508.35. Nifty slipped 59 points to 5,253.55.