Well, if you trade in the share market, then you must have heard about India VIX from many places that if you know about India VIX, then you can find out how much Nifty can increase and how much it can fall.
Well, today it is possible that you do not have much information about India VIX till this point of time, but that is why it is important to read this blog because today I would like to tell you that if you read this blog completely, then you will be able to understand the concept of IndiaVIX completely and yes, you can find out with a good probability that how much Nifty can increase in a year,
how much it can fall, how much it can increase in a month, how much it can fall, how much it can increase in a week and how much it can fall and how much it can increase and how much it can fall in a day. Now, if you can find out all this from IndiaVIX, then let’s understand this VIX first. Now, VIX means volatility index, we also call it as fear index.
So what does fear index mean? VIX tells you how much fear is in the market; how much is the atmosphere of fear. You understand here that IndiaVIX was introduced in2008. NSE publishes data of IndiaVIX. How it does, you will also find out today.
We will talk a little in details that if you are trading from before, then you can take a lot of value from this blog and if you are new, then I am going to clear all the concepts. Now, here the concept fix, in today’s date, we call it IndiaVIX in India, but if you see internationally, it is SNP VIX and this was introduced by the Chicago Board Option Exchange in 1993.
Now, many people trade by seeing IndiaVIX. Let me explain how it works. Before that, let ‘stalk about a myth because most people still think so. People have a lot of doubts about VIX. If you don’t know much, then you know only this much and this is a myth. What is it? I will tell you that first. People think that if the market falls, then the VIX increases.
So here is the market. If the market falls, then people think that VIX will increase and if VIX increases, if you see VIX increasing here, then people think that the market will fall. So people see the market and see VIX that the market is increasing and if VIX is increasing, then the market will fall, but this is not true in all the cases.
In most of the cases, this happens, but this is not right. Why not? I will give you an example. Now we all have faced the lockdown. Let’s take an example of shoe company during the lockdown. A company that was making shoes. Now people are not going out of the house and not buying shoes. Due to the lockdown of that company, the sales of a quarter get spoiled.
Now when the sales of the quarter get spoiled and the result comes, then the share price of that company starts falling. It was breaking in the lockdown, but even then when the company’s result comes, its share price starts falling. So the share price is falling from here. Now here one thing to understand, I would like to tell you that VIX is for index.
Like we are talking about S&P 500 and Nifty, so we use VIX for index and when we talk about individual shares, we talk about option contracts, then we talk about IV and implied volatility. So here understands one thing that the share price is falling, but now that quarter is over, lockdown is over, everything is going well.
Shoes have started selling from here. Now the share price is still falling, but at this time, because people think that if the market falls, then VIX will go up or IV will go up. It is not necessary. It is possible that at that time, IV is also falling and if IV is falling, then the volatility is decreasing.
People are fearing less that now shoes are selling well, it will be fine in the future. So this is telling us IV. From here you can understand that if IV is falling and the share price is also falling, then it is possible that the fear is also decreasing.
The share price will increase now and bounce back from here’s it is important to understand this thing and this is a perfect scenario to understand this, but generally what happens when the market is falling, there is a crash, then the atmosphere of fear starts coming.
If there is a correction, then the atmosphere of fear starts becoming and what does the atmosphere of fear mean that VIX will go up. So in most cases, it is fine that if the market falls, then VIX increases, but every time it will happen, it is not necessary. So it was necessary to clear this myth.
Now we come to the something for which you are reading this blog that we trade in Nifty. Sir, you tell straight that what difference does VIX make on Nifty and the second thing we have to know is that by looking at VIX, especially India VIX, how can we predict how much Nifty will increase and how much it will fall.
Now I try to explain to you here. Understand one concept that thesis is, now where is this VIX visible, where will you get it, at today’s rate, things have become very easy. I would like to show you, you simply Google it. See if you go to Google, the data is published by NSE, but I am making things easy for you.
You will go straight to Google, you will write India VIX, you will get the number of India VIX and what you Cando is you can go to the NSE India website, click on market data, click on indices and after that all the indices will come in front of you and here you will also see India VIX, which you are seeing 20.79, so you are seeing India VIX here.
Similarly, you are also seeing Nifty here, Nifty next 50, so you are seeing the current pricing here. Now if you see IndiaVIX here of 20.79, what does it mean, where are you getting this data from, you understand it, but now it is important to understand here, you have seen Nifty, it is closing at15810, so here 20.79, what does it mean that I am writing 20.79,
let’s understand this first. Our VIX is 20, VIX is 21, what does it mean, it means that the first thing is that this data is annual, it means that 20.79% Nifty can increase or decrease within a year, how much percent 20.79% and who is telling this, this NSE is telling through India Visio what is the volatility index telling us that Nifty can increase20.79% and can decrease20.79% annually in a year.
Now there is one more thing here, I will tell you that, now what does it have to do with annual, many people only trade in short term, they trade monthly, weekly, daily, intraday, so it is important to understand here that I have found out that Nifty is according to today, we feel that it can increase20.79% and decrease, the probability has come in front of us
, but here instead of annual, what is the monthly probability, if we talk about a month, then we have the monthly probability in front of us, if we talk about weekly, according to a week, how much Nifty can increase or decrease, or if I talk according to daily, then how will we know this, is there any formula by which you can find out,
you got to know annually, monthly, weekly and daily, how much Nifty can increase or decrease, so here is a very simple formula, I would like to explain to you, annually you understand, according to the year, let’s talk about monthly, how many months are there in a year, you will say 12 months, very nice, how many weeks are there, you will say 365 days,
now what you have to do is to find out the square root of all three, now why are we finding out the square root, for a simple calculation, I am going to show you now, so annually you found out that 20.79% of your Nifty can increase or decrease, six is 20.79 in front of you, now here we will do a small calculation,
I will open the calculator for you, we are talking about the square root of 12,so it comes in front of you 3.46, 3.46 is a number that comes in front of you, now what to do, whatever Wax values, that is 20.79, 20.79 that you are seeing is Wax, you will divide it simply, 3.46, 6%,this 6% you have calculated, the probability of Nifty is how much it can go up and how much it can go down in one month, it is 6%,
that Nifty can group 6% and down 6%, knowhow can you define this more accurately, you have also seen the closing of 15800, so if am talking about 15800, I am opening the calculator again, take some time because
it is important to explain the concept, 15800 is the current level of Nifty plus 6%, so Nifty can go up to 16750 in one month and when we are talking about falling, it can fall from 15000 to 6%, we will do minus 6%, so we have a clear range, it can go up to16750 and it can fall to 14850,
how did you find this range, simply you have to calculate simple calculation you have done that whatever is the range of Nifty, it can go more than20% in a year, it can fall more than 20% but within a month, you can see 6% volatility in Nifty.
You know this from this simple formula. If we are talking here weekly, we are talking about 52 weeks, then what you have to do is weekly, how much Nifty can increase in a week, how much it can fall, then what we will do here, we have a simple calculation that we will take the square root of 52 here, we have the figure of 7.21,
now what we will do, we will divide 20.79 by 7.21, we have the figure of 2.88, now thesis 2.88%, what does it mean that weekly 2.88% Nifty can increase or fall. Similarly, if you want to find the range of day, then what you will do here, you will take the square root of 365, now it is very easy for you too, you can calculate it yourself,
so if we are talking about daily, then here you are taking the square root of 365, which is 19.1, now what you see that how much is the VIX, 20.79 divided by 19.1, so almost 1% you see that in day, by looking at today’s VIX, you can find that the market can go up 1% or down 1%, here you calculated that the annual probability is 20.79% of going up or down in Nifty, 6%in a month, 2.88% in week and in a day 1% Nifty can increase or fall,
this you calculatedly looking at India and India, now here you can predict the range, like we have predicted the monthly range, so you know that if Nifty is 15800, so within a month Nifty can go up to 16750 or 14850up and down, what you will know from this, now from here you are understanding some options and strategies,
some strategies are coming in your mind, we have wrote many blogs on options and strategies, if you have not seen the complete playlist on options and strategies then click on the I button, you can learn many options and strategies for free and now I will tell you that here also you can use an option strategy,
which one I am just going to tell you, now understand one thing, here we talked about365, now in a year, the days are 365, but if I tell you one thing that is 365 days trading, you will say no, so remember that these are 365 trading days, now as I told you in the starting that Nosedives us this data, NSE gives us that what is the price of Vixens going on at this time, now here is a question of mine, how does NSE calculate VIX?
how does it do this, it does this by looking at the options, by looking at the premiums of options, it gives you these data, so you do not need to extract the data from yourself, but still you should know how it works, so here I would like to show you the option chain, see here Nifty closed at 15810,
now we are talking about the expiry of 7 July, which is our weekly expiry, were talking about 30 trading days, if you see around it, then which expiry will you see here, you will see the expiry of 18th of August, now see there is a little less liquidity in it, so here you will see 15800 trading, if you see the call side of 15800,then the premium of the option is 503 and here it is 434,
I am showing you by calculating it, you may not have understood it, but how the calculations are, you will know now, so I turn on the screen recording here so that you can see everything, so I open my calculator here and calculate for you, so now we were talking about 15800,503.70 plus 434.70.
so we have the rate of 938.4, so this 938.4 is the premium fours, which you can earn if you use the option strategy, now we have to talk about the option strategy, so what is being known from here, if I say that this 938 is how much percent of 15800, so you will see that we divide it by 100 and multiply it by 100
, so you can see 5.93, this 5.93is the percent of 15800, now come here, we did some calculations for a month, this was our monthly calculation, that how much nifty can go up and downing a month, so you calculated that 6% nifty can go up or down,
so we are talking about a month,30 trading days, so the 6% that is coming here is the price of the premium, this calculation of Vix is done by looking at the option chain, according to the premiums of the option,
so you Can do this, but we will not go too technical because the value of India Wax is given bins, you will get it even if you write on Google, but you had to know, so I calculated it and showed it, because understanding is very important for you,
and if you understand things, then you will be able to trade better in the future, now here you can use different strategies, if you know this range that nifty can go up or down6% in a month,
but you feel that the chances are that it will be in the middle, it will been the middle of this range, so what can you do, I have taught you many options strategies, if you want you can make straddle and you can short the straddle, so what does straddle mean, straddle means simply same, if the strike price is of 15800, then the call and put option of the same strike price and if you are shorting,
then we sold both of them, if we sold both of them here, then what will happen with this, the premium that you were going to buy, you can earning the future and in this way you can also sell options here, now many strategies can be made here, which we are going to learn in the coming blogs, because the more interest you show, I will enjoy giving you more information,
so today we have understood IndiaVIX to large extent, what I have explained to you, let’s understand that, I have told you that the value of IndiaVIX is annual value and if you want, you can calculate the monthly, daily value by if you want to do monthly, you can use square root of 12, the value that comes out of it, you will divide it.
whatever the value of IndiaVIX, similarly, if you have to calculate weekly, what will be the value of VIX, then what are you going to do, you will divide the value of VIX, which is the square root of52, which will give you percentage and similarly for daily, so you can do it yourself,
now let’s assume that am giving you a homework, because if you comment, it will be fun, VIX is not 20, Vixens 40, so if VIX is 40, then monthly, weekly and daily, what will be the probability of going up or down in Nifty, you will tell by commenting, very nice, so you got to know about IndiaVIX, you got to know that if the fear increases in the market, then IndiaVIX also increases and generally when the fear increases, then the market goes down,
but it is not all the time true that when the market is going down, then IndiaVIX will group, I told you with an example that it is also possible that the price is going down and VIX or implied volatility is also going down and if it is going down, then after sometime you can see that the price of the stock, because we are talking about volatility, it can also come up.