The National Stock Exchange (NSE) will start disseminating real time data on India VIX, the volatility index, by July. This will pave the way for launch of futures and options (F&O) trading in VIX.

Currently, the VIX value is only provided at the close of market hours. VIX measures markets expectations of volatility over the near term and is calculated on the basis of Nifty 50 index option prices, among others. A VIX value, which is currently at 21.4%, indicates that the market expects Nifty to move 21.4% from current levels on either side over the next year.

The exchange has already started testing the index internally on a real time basis, according to a source familiar with the development. NSE will be formally approaching the market regulator Securities and Exchange Board of India (Sebi) for approval once its starts providing live feeds on a real time basis.

Experts feel that the F&O trading in the volatility index will give sophisticated investors an additional tool to managing portfolio risk. Bhavin Desai, manager, derivatives at Motilal Oswal Financial Services (MOFSL), said that normally markets tend to be highly volatile in a downtrend and subsequently the VIX shoots up. ?In a scenario like this, when some bit of nervousness or pressure is coming into the system and the market is expected to come down, investors can buy VIX futures. Similarly, if investors feel that the markets are bottoming out, they can sell VIX futures contract,? he said.

Historically, equity markets and India VIX have usually moved in opposite directions. For instance, the India VIX which was hovering around the level of 17% when the BSE Sensex touched a high of 17,970 points on April 7, shot up sharply when the market started correcting following the European debt woes. It went on to touch a high of 34.52 on May 25, when the Sensex hit a low of 16,022 points during the past two months.

India VIX started gaining popularity among investors after the options volume on the derivative exchanges picked up drastically during the 2008 financial market crisis. Investors prefer options contracts to hedge their risk, as the losses in such contract is limited to the extent of premium paid by the investor. Currently, Nifty options constitute over 78% of the total traded quantity in the Nifty futures and options contract as against 45% in June 2008.