VIX hovers around 16-mark in absence of major global or domestic signals
India VIX, a measure of investors? perception about the risk of sharp swings based on options prices, touched a near two-year low on Tuesday. The gauge has hovered around the 16 levels for almost a month now as the Nifty has stayed rangebound in the absence of major global or domestic cues.
India VIX touched a near two-year low of 15.62 on Tuesday and has stayed at the 16 levels since July 19. On Friday, the gauge closed at 15.73, a 0.25% gain over the previous close, even as the Nifty closed at 5,366. The NSE Nifty has been rangebound between 5,109 and 5,380 since July.
?The rangebound market has resulted in a dip in implied volatility (IVs). Excluding the opening gaps, the Nifty has moved about 0.5% for much of the past month,? said Nandish Patel, senior derivative analyst, Sharekhan, adding that the market had priced in all the negatives. Typically, IVs rise when the market is bearish and fall when it is bullish.
?It?s a bit perplexing as the volatility levels have been staying low for quite some time now. The India VIX has been mirroring the CBOE Volatility Index, which is also hovering near its 3-year low,? said Savio Shetty, research analyst, institutional equity derivatives, Prabhudas Lilladher. Shetty, however, doesn?t expect these low IV levels to persist going forward as the global macro economic situation has not improved and the uncertainty in the global markets continues.
In the past month, excessive option writing has been seen in the 5,000 and 5,200 puts as the option writers had a positive bias towards the market, according to market participants. Option writing was also seen in 5,500 call options. ?Unless the market breaks these levels (5,200 on the downside and 5,500 on the upside), the VIX values are expected to remain stable,? said Patel.
The volatility index touched its highest value of 27.84 on March 2 this year and closed at 26.25 on February 21, the day the market touched the year?s high of 5,607. It has mostly fluctuated between 20 and 25 levels for much of the year despite the spate of negative news, such as dismal GDP numbers, rupee depreciation and the escalating crisis in the euro zone. VIX touched its historical peak of 85.13 on 17 November 2008, in the aftermath of the collapse of Lehman Brothers.
Market participants expect the Nifty to edge higher this month. ?We expect the Nifty to trade between 5,300 and 5,400 till the expiry. However, the Nifty might slip back to the 5,200 levels subsequently,? said Shetty. India VIX is computed using the best bid-and-ask quotes of the out-of-the-money near- and mid-month NIFTY option contracts, which are traded on the F&O segment of the NSE. The higher the India VIX values, the higher the expected volatility and vice-versa.