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1. Lecture No. 72
VIX – Volatility Index
Rohan Sharma (Coach)

2. Volatility Index
•Volatility Index is a measure of market's expectation of
volatility over the near term.
•Usually, during periods of market volatility, market moves
steeply up or down and the volatility index tends to rise.
•As volatility subsides, volatility index declines.
•Volatility Index is different from a price index such as NIFTY.
•The price index is computed using the price movement of
the underlying stocks.
•Volatility Index is computed using the order book of the
underlying index options and is denoted as an annualized
percentage.

3. History of Volatility Index
•The Chicago Board of Options Exchange (CBOE) was the first
to introduce the volatility index for the US markets in 1993
based on S&P 100 Index option prices.
•In 2003, the methodology was revised and the new volatility
index was based on S&P 500 Index options.
•Since its inception it has become an indicator of how market
practitioners think about volatility.
•Investors use it to gauge the market volatility and base their
investment decisions accordingly.

4. India VIX

5. India VIX Computation

6. India VIX & Nifty

7. India VIX Futures

8. India VIX Futures

9. India VIX Futures

10. The VIX & Market Movement
• the VIX is a measure of 30-day implied volatility as indicated by the
pricing of Nifty index options.
• The VIX is expressed as an annualized volatility measure, but it may
actually be used to determined shorter-term market-price movements.
• The VIX is the 30-day implied volatility of the Nifty, but it is also
expressed as an annual figure.
• When the VIX is quoted at 20, this can be interpreted as Nifty options
pricing in an annualized move, up or down, of 20 percent in the
Niftyindex over the next 30 days.
• CALCULATING EXPECTED 30-DAY MARKET MOVEMENT
30 Day Movement = VIX / Square Root of 12

11. The VIX & Market Movement
• If the VIX is quoted at 20, the result would be the market expecting
movement of about 5.77 percent over the next 30 days.
5.77% = 20/3.46
VIX and Expected 30-DayMovement of the Nifty