4 thoughts on “Indian Economy”

  1. Volatility index is an index which hedges on market volatility . It was first used by the CBOE in 1993. It is used in india by all major stock exchanges like BSE and NIFTY etc. It looks at the volatility for a 30 day periods and investors enter into a contract for 3 weeks at a time. When the index is high volatility is high and risk is high when volatility is low risk is low . Most have a range of 13 to 32 . Critical value is a value that marks the difference between safe and risky investment in a volatile market. Different markets have different critical value but usually it’s in the high 20s.

    1. Critical marker is about 14..above 14, investors take away whereas below it, they wait because they judge the market as stable and profitable.

  2. Volatility Index ( VIX ) was defined for first time by Chicago Board Options Exchange ( CBOE ) to measure implicit volatility in out of money pull and call options for next 30 days so as to help investors take decisions regarding future investments. VIX is variance swap ( over the counter derivative used to speculate or hedge volatility ). It is a weighted blend pf prices along range of options available on a given index.

    Significance of critical value ( in percentage form ) lies in fact that it denotes point upto which volatility is tolerable ( not highly upside and downside ) and does not affect buying and selling decisions of people much thus giving insight to understanding market sentiments. Values both above and below critical value are unwarranted. Moreover relationship between VIX and market is of inverse nature ( when prices in markets rise then VIX falls owing to fall in index prices ).

    Hence understanding VIX in today’s changing dynamic scenario of investments is becoming important.

  3. The volatility index value is the percentage by which investors expect the markets to move in the next 30 days. So, if the VIX is at 30, investors are expecting the markets to change by 30%. It is a widely used measure of market risk and is constructed by using the prices of Nifty options. India VIX was launched by the National Stock Exchange (NSE) .
    The VIX has an inverse relationship with the market.
    Significance
    So,when the VIX goes up as the market becomes fearful and falls when the market feels confident about its future direction. This is because option prices tend to rise when investors expect the markets to be volatile and this pushes up the VIX. On the other hand, if investors don’t expect the markets to move very sharply, the prices of index options decline, bringing down the VIX.
    For contrarian investors, the VIX provides important clues to the future direction of the market. A high VIX value of over 50 indicates a high degree of panic in the market, which is seen by the contrarians as the best time to buy. On the other hand, a low VIX value of less than 30 suggests that the market will be range-bound and there is complacency among investors. Contrarians generally see this as an opportunity to short-sell.

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