India VIX, popularly known as the fear index, is nearing its all-time low. On Tuesday, it closed at 17.04, its lowest closing since its inception in April 2008. On Thursday, after touching an intra-day low of 15.83, it closed at 17.71. VIX is nearly half its value from the year?s high of 34.52 it had touched on May 25, 2010. Since inception, the gauge has closed below 18 only on 13 days.
A VIX value of 17.7 implies that on an annualised basis, Nifty is expected to move either up or down by 5.1% over the next one month from current levels. This could mean a movement of 280 points up or down. A VIX value below 20 usually represent complacent times for the market and a value above 30 is an indication of high volatilility.
The India VIX seems to be toeing global volatility trends. For instance, the Chicago Board Option Exchange?s CBOE Volatility Index, based on S&P 500 Options prices, has fallen from the 30-plus levels to 22.2 in the last one month.
?The fear factor is relatively absent. There has been no negative news, either global or local, in the last one month and our markets have largely stayed range-bound,? said Vijay Kanchan, VP ? derivatives, Dolat Capital.
According to Siddarth Bhamre, head ? derivatives, Angel Broking, the sideways movement in the market has resulted in declining risk premiums. ?Since premium is a function of volatility, it is also at its lowest levels,? he said.
