Why it matters to keep a close watch on India VIX!

India VIX is used to interpret the fearfulness among the market participants. 

India VIX is a perfect index that is used to measure the volatility in the market. Investors, traders, hedgers as well as speculators keep a close watch on India VIX to understand the volatility of the Indian market and make forecasts of the market for a specific period. 

India VIX is basically a percentage that denotes the market’s performance for the upcoming year. Let’s say that India VIX is currently placed at 20, which means that the market is likely to make a move of 20 per cent in either direction in the coming one year. India VIX, also sometimes referred to as the fear index, is used to interpret the fearfulness among the market participants. During the Coronavirus crash of 2020, India VIX had hit a high of 86.64, which is one of the highest in the history of the Indian stock market. In such a high VIX environment, the fear is maximised while the market is bound to make volatile moves. 

India VIX is the base factor for many pricing terms. The option premium depends on India VIX, as high VIX leads to high premiums. Ideally, India VIX, around or below 20, is considered favourable for the investors as well as for the market in general. The option premiums are decent and the market is quite stable thereby, making a perfect opportunity for investing. Similarly, India VIX being too low is also not good for the market. Option premiums are quite less, and thus, any slight jerk in the market can trigger a series of drastic falls thereby, hitting stop-losses. 

In a nutshell, India VIX remains a close factor to watch out for! Any rise in India VIX induces fear in the market participants while a fall in the index brings confidence in the market. Currently, India VIX stands at 23-odd points, and therefore, is slightly above the favourable limit. Thus, any fall in India VIX shall favour the market, which is bound to be more stable and trade higher.