The VIX, also known as Volatility Index, is an index that measures the market's near-term volatility expectations. VIX is also trademarked by Chicago Board Options Exchange (CBOE), which introduced volatility in 1993 as an asset class. After its success and popularity, the CBOE introduced VIX derivative (F&O trading) in 2004.
Market index and Volatility Index are totally different. Market index measures the direction of a market. It is calculated from the price movements in the underlying stocks. Volatility Index measures market volatility and is calculated by using the options available to the underlying index. The volatility index, on the other hand, is an annualized percentage. Market index value is a number. India VIX is the volatility index that is based on Nifty opinions' order books.
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Why is India VIX important
India VIX, or India Volatility Index, was launched in 2008 by the National Stock Exchange (NSE). NVIX Futures followed in 2014. It is believed that volatility indices such as VIX or India VIX replicate the mean reversion by allowing for fluctuations around long-term variances.
India VIX is an index that measures the volatility of the Indian market from the perspective of the investor. It uses a similar methodology to CBOE and includes the highest bid-ask rates and the expected volatility figure for 30 days. There are some modifications to adapt and suit the options order books of NIFTY.
The value of India VIX and volatility are related. Higher volatility expectations are indicated by a higher India VIX value. A significant change in Nifty is indicative of higher volatility expectations. However, a lower India VIX value indicates lower volatility expectations. a minimal change.
India VIX has a strong negative correlation to Nifty. India VIX is inversely related to Nifty. Nifty will fall if India VIX falls. Historical data shows that India VIX reached its peak just a few days after Nifty hit its bottom following the Lehman crisis.