Q&A_ How to read India VIX and what does it actually mean?
Updated
Namaste!
India VIX is a volatility index based on the NIFTY Index Option prices. From the best bid-ask prices of NIFTY Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days.
In simple words, it tells us the % market is expecting Nifty to move (whether up or down) in the upcoming 30 calendar days.
India VIX chart analysis:-
You must have noticed that each time VIX touch 10-11% levels, it bounces off. Did you ever think what is the annual average return of Nifty 50?
Well, it's around 12%. Don't forget, Nifty also has yearly dividend yield of around 1%, so the total becomes:-
India VIX support = 11%
Dividend yield of Nifty = 1%, total 12%.
I agree, the upper statement sounds non-sense, but in simple terms, it feels logical to me. VIX has to come down, for the Nifty to go up. In other words, we should be ready for a correction in Nifty, until the VIX touches 11% levels.
India VIX goes in the opposite direction than Nifty 50.
Why? Because, the long term trend of the Nifty is up. Hence, VIX will only rise, when there is a shift (expectation) to the downside.
Nifty50 chart analysis:-
1. Nifty has hit the strong weekly trendline resistance, this is the 4th time. I am expecting at least 1 more corrective rally on the downside, which makes it a 5 time resistance. The 5 number is based on the recent history of Nifty 50. Since 2016 to 2020, there were 5 supports, and 5 resistance in the same period.
2. ADX (Average Direction Index) is hovering around 22 points and sloping downwards. It generally means, the market isn't liking the short term uptrend, if it could, then ADX must rise.
Q: When the next correction starts, will all the stocks in the Nifty 50 fall?
A: No, but a small yes. All stocks will correct, but the overvalued will correct more.
Q: Should I wait for the correction to invest in?
A: Nope. You should start investing now, because many stocks in the Nifty 50 has been become undervalued due to this correction (like the IT sector except TCS). Choose them wisely. I don't recommend investing in more than 10 companies of the Nifty 50. Obviously, you should not concentrate your portfolio in any of the sectors, but diverse in the companies and sectors whose business you understand.
Disclaimer: The analysis I have shared is based on my understanding and experience in the markets. Investment does not guarantee a fixed return due to volatile nature of markets and may result in a loss. Please do your analysis and/or consult your financial advisor before investing.
India VIX is a volatility index based on the NIFTY Index Option prices. From the best bid-ask prices of NIFTY Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days.
In simple words, it tells us the % market is expecting Nifty to move (whether up or down) in the upcoming 30 calendar days.
India VIX chart analysis:-
You must have noticed that each time VIX touch 10-11% levels, it bounces off. Did you ever think what is the annual average return of Nifty 50?
Well, it's around 12%. Don't forget, Nifty also has yearly dividend yield of around 1%, so the total becomes:-
India VIX support = 11%
Dividend yield of Nifty = 1%, total 12%.
I agree, the upper statement sounds non-sense, but in simple terms, it feels logical to me. VIX has to come down, for the Nifty to go up. In other words, we should be ready for a correction in Nifty, until the VIX touches 11% levels.
India VIX goes in the opposite direction than Nifty 50.
Why? Because, the long term trend of the Nifty is up. Hence, VIX will only rise, when there is a shift (expectation) to the downside.
Nifty50 chart analysis:-
1. Nifty has hit the strong weekly trendline resistance, this is the 4th time. I am expecting at least 1 more corrective rally on the downside, which makes it a 5 time resistance. The 5 number is based on the recent history of Nifty 50. Since 2016 to 2020, there were 5 supports, and 5 resistance in the same period.
2. ADX (Average Direction Index) is hovering around 22 points and sloping downwards. It generally means, the market isn't liking the short term uptrend, if it could, then ADX must rise.
Q: When the next correction starts, will all the stocks in the Nifty 50 fall?
A: No, but a small yes. All stocks will correct, but the overvalued will correct more.
Q: Should I wait for the correction to invest in?
A: Nope. You should start investing now, because many stocks in the Nifty 50 has been become undervalued due to this correction (like the IT sector except TCS). Choose them wisely. I don't recommend investing in more than 10 companies of the Nifty 50. Obviously, you should not concentrate your portfolio in any of the sectors, but diverse in the companies and sectors whose business you understand.
Disclaimer: The analysis I have shared is based on my understanding and experience in the markets. Investment does not guarantee a fixed return due to volatile nature of markets and may result in a loss. Please do your analysis and/or consult your financial advisor before investing.
Trade active
What I defined VIX was incorrect to some extent. Let's take an example of VIX, as on (21 Nov 2023), it is at 12. It means that the option sellers are expecting the Nifty50 to move (12% up or down from current prices) by the next year (i.e. 21 Nov 2024) and charging premium to option buyers accordingly. The same statement also translates that they are expecting Nifty50 to move 1% up or down by the next month (21 Dec 2023).Note
India VIX formulae: C=StN(d1)−Ke−rtN(d2)C = Call option price
S= Current stock price; other underlying price(s) may be considered
r= Interest rate (risk-free)
K= Strike price
N= an ordinary/normal distribution
t= time to maturity (source: Groww article).
Note
I expect anyone who is reading my writings to know that there is nothing "certain" in the markets. Neither the %gain on stock nor "out-performance" or "under-performance". There is a risk and opportunity cost involved in both, buying and selling. Selling at any price can often result in "opportunity loss" when the stock moves higher and higher. Human psychology is a culprit here. For e.g. I post any stock which seems undervalued or overvalued to me on tradingview. When anyone makes money on that, they wont appreciate me "a single word". But when they lose or it results in opportunity loss, they are bound to blame me. I don't criticize any person, because I know their psychology has defeated them. At last, there is nothing like "easy money" in the markets. The survival of the fittest holds absolutely true here.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.