Stock / Share Market
by 5paisa Research Team Last Updated: 2022-09-30T11:07:35+05:30
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India VIX

Investing in the stock market requires familiarity with a wide variety of jargon, and "India VIX" is no exception. You've probably heard the phrase, even if you're starting.

India VIX is an abbreviation for the India Volatile Index, which provides investors and buyers with information about market volatility and changes. Therefore, it is imperative to understand what India VIX represents and why the concept is crucial for investors and buyers.

In this article, we explore what India VIX is, why it is significant, how it is calculated, and its relationship with Nifty so you can grasp what it means.


What Is India VIX or India Volatile Index?

NSE developed the India Volatility Indicator (VIX) in 2003 to track investor expectations about short-term market volatility and swings. Chicago Board Options Exchange was the first to come up with the idea of a volatility index back in 1993. With CBOE's consent, Standard & Poor licenses NSE to use the 'VIX' trademark in connection with the India VIX.

Volatility Indexes are used to determine the market's expectations of volatility. Volatility measures the "rate and amplitude of fluctuations in prices," also referred to as "risk" in financial markets. The volatility index measures the degree of uncertainty in a particular market by measuring the rate at which an asset or market index changes in value.

An increased volatility index indicates how volatile the market is and how often it moves up and down. In addition, as market conditions become steadier and less volatile, the volatility index decreases. According to this index, investors anticipate the market will perform over the next 30 days.

Volatility Indexes are not the same as price indexes such as NIFTY. India VIX, also known as the Volatility Index, is calculated by looking at the index options' order books and expressing it as a percentage. A price index, on the other hand, considers the movement of the stock's price.

India VIX is calculated using the Black and Scholes model, also called the Black and Scholes model. To calculate the India VIX, quotations from the NSE's Futures and Options (F&O) market are used.

Considering the previous explanation, it is clear that Traders measure market volatility using the India VIX (volatile index), which provides valuable information to investors before making significant investments and checking their holdings. It is often known as the "fear index" because investors who hold a large amount of equity keep an eye on it.


What Are the Factors Considered While Calculating the India VIX?

The four major elements that affect the India VIX, often called the volatility index are:

  • Expiry Time
  • Interest Rate
  • Forward Index Level
  • Bid-ask  
  • Let's take a closer look at each aspect of the India VIX:
  1. Expiry Time: To achieve the degree of accuracy traders depend on, the time to expiration is calculated within minutes rather than days.
  2. Interest Rate: A risk-free interest rate is calculated for the NIFTY option contract using the applicable tenure rate, which is the interest rate over the next 30–90 days, depending on the expiration month.
  3. Forward Index Level: As part of the volatility index calculation, the forward index level determines which out-of-the-money option contract should be used. The forward index level determines the strike price of the options contract. When determining the India VIX, forward index levels play a significant role since they are the most current prices for NIFTY futures contracts for their expiration dates.
  4. Bid-Ask: During the calculation of India VIX, the bid and ask prices for the options contracts are also considered as NIFTY options may be purchased at a strike price below forwarding index levels.

India VIX is calculated using the CBOE's method, with some tweaks to account for the NIFTY options order book. A formula known as the Black-Scholes model (B&S) is used to compute India VIX. This model asks how time and other risk factors affect a derivative's value. You can use the online India VIX calculator to solve these complex formulas.


India VIX Applications in the Indian Market

India VIX in the share market is a volatility index based on the NIFTY Index Option prices. Indicators such as the India VIX assess the Indian stock market's potential for losses. Investors expect less volatility in the Indian stock market in the next 30 days when the India VIX is low. Stock prices may be more volatile over the next 30 days if the India VIX is high.

Because of these characteristics, this index is helpful for short- and long-term investors. Since the 30-day India VIX predicts future volatility, it has less impact on long-term investors who can ignore short-term price changes but may be exposed to MTM loss limits.

In the long run, an increased volatility index could cause alarm. Knowing the volatility of the index value might be helpful for investors so that they can better gauge the market and make investment decisions.

The India VIX provides intraday traders with information about the direction of market volatility as it rises and falls. Individuals can use this information to gauge the risks involved in investing in the stock market.

Options traders will also find the India VIX very useful. Given the market's uncertainty, the index might be a valuable tool for deciding whether to purchase options. When volatility is forecasted to increase, chances are more attractive, and buyers are more likely to profit from them. If the VIX decreases, option sellers will benefit because more time value will be wasted.

A portfolio manager or mutual fund manager may accomplish similar objectives using the India VIX. They may increase exposure to high beta stocks when the VIX is at its highest and can increase exposure to low beta stocks at its lowest.


How Are India’s VIX and Nifty Related?

It is one of the most accurate and reliable tools for forecasting index volatility. For index trading, the volatility index (VIX) has demonstrated an inverse relationship with Nifty's performance over the past nine years. Most market highs happen when the VIX is low, and when the VIX is high, most market lows happen.

As you can see from the India VIX Trading view chart below, VIX averaged below 30 points before the outbreak. As a result of fears over the spread of COVID-19, the India VIX reached its highest level in March 2020. On March 27th, 2020, the India VIX stood at 70.39 points. It is believed that the increase was caused by the anticipated decline in stock prices at the time.



Knowing what India VIX stands for will make it easier for you to make trades. Traders should be aware of the India VIX to adjust their trading methods when market volatility shifts. It's a great indicator of how stock prices will change. Derivative contract pricing and premiums are also heavily influenced by it.


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Frequently Asked Questions

India Volatility Index (VIX) tracks market volatility in India. A high India VIX number suggests that investors anticipate a significant move in the Nifty. At the same time, a low India VIX value shows investors expect a little move in the Nifty.

For instance, The India VIX normal range is between 13 to 19, and normal volatility over the following 30 days may be anticipated.


The VIX and the Nifty have always been inversely related to one another. When looking at the India VIX Historical Data, we see correlation ranges between -0.80 and -0.85. This testifies to a significant inverse relationship.