VIX index is generally regarded as fear index. The VIX represents the expectation of the volatility of the market through the options premium.
The general rule is that when Index falls the VIX index rises indicating the rise in premium paid for protection. Thats a simple theory but what if the VIX rises when the Index also rises. Well that move indicates a lot about whats happening in options.
Taking today's example the Nifty moved up more than 2% and the Indian VIX index was up >3%. Chart.
This clearly shows that the some one was caught on by the today's move and that's why the rise in options premium.Analyzing the options data for Nifty index there was huge OI decrease in 5600 call which was crossed by Nifty spot and the index closed above that mark by 50 points i.e. 1%.
Worth noting is that there were only 2 15 mins candle which were -ive after Nifty crossed 5600. That shows the strength in the move. And this led to the covering by the call writers and thus rise in premium translating into rise in VIX.
All this was because 5600 was regarded as the line separating the bulls and bears. See post here (Extreme pessimism) and post here.
This move is exactly same as when Nifty crossed the 5500 in Sep after gap up opening.
Related Links on IV:
Nifty IV moving higher March 8
The general rule is that when Index falls the VIX index rises indicating the rise in premium paid for protection. Thats a simple theory but what if the VIX rises when the Index also rises. Well that move indicates a lot about whats happening in options.
Taking today's example the Nifty moved up more than 2% and the Indian VIX index was up >3%. Chart.
This clearly shows that the some one was caught on by the today's move and that's why the rise in options premium.Analyzing the options data for Nifty index there was huge OI decrease in 5600 call which was crossed by Nifty spot and the index closed above that mark by 50 points i.e. 1%.
Worth noting is that there were only 2 15 mins candle which were -ive after Nifty crossed 5600. That shows the strength in the move. And this led to the covering by the call writers and thus rise in premium translating into rise in VIX.
All this was because 5600 was regarded as the line separating the bulls and bears. See post here (Extreme pessimism) and post here.
This move is exactly same as when Nifty crossed the 5500 in Sep after gap up opening.
Related Links on IV:
Nifty IV moving higher March 8
This comment has been removed by the author.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteVery interesting analysis. One more website that offers this kind of analysis is www.niftyvix.com
ReplyDelete