India’s volatility index , VIX reached a fresh 52-week peak at 16.96 before concluding the session with a 13.56 per cent surge, settling at 16.6 on Monday’s trading session.
India VIX captured significant attention as it exhibited a characteristic oscillating pattern, plunging by over 20 per cent to dip below the 10 mark on April 23. Subsequently, within the following 8 trading sessions, the barometer surged by over 60 per cent, marked by relentless upward movements.
“On a daily scale, the index has formed a bearish engulfing candlestick pattern, followed by today’s red candle, indicating weakness. If the Nifty goes below 22,340, the slide may continue to 22,100-22,000 levels in the near future,” said Neeraj Sharma, AVP Technical and Derivatives Research at Asit C. Mehta Investment Interrmediates Ltd.
India VIX has been increasing since April 24, crossing the 17 mark. This marks the first time the index has reached such levels since December 2022, spanning a period of more than 17 months.
Where’s VIX headed in May 2024?
Experts believe that this index is likely to go up higher in the coming weeks amid ongoing general elections in the country.
“The volatility index has moved up sharply last week and moved to its highest levels seen in more than 2 months. We believe that ongoing result season along with the union elections have triggered the rise in volatility index and it is likely to remain high in the coming weeks,” said ICICI Securities in a note.
According to Anand James, Chief Market Strategist, Geojit Financial Services, the volatility index VIX needs to sustain above 16 to elucidate higher fluctuations in option premiums.
“Seen in isolation, the present levels of VIX are consistent with historical trends, which usually witness a rise in VIX when previous peaks are re-visited. In early April 2024, when Nifty tested a new record peak, VIX was near 11, but now above 16, when we are again back in the vicinity of the record peak. Similarly, when in mid January 2024, when we saw a new peak in Nifty, VIX was 13.78, but three weeks later when Nifty returned to the same peak, VIX would rise to the 15-16 region, where it remained for the rest of February. What is raising eyebrows now is the steepness in the fall and rise of VIX in a small time frame. Just three weeks back, VIX had fallen to near record lows, after Nifty averted a major fall, having bounced off previous month’s low, thus calming investors,” James said.
He further added, “The mean of straddles during the time period of Feb to Apr 2024 is 198 with a standard deviation of 23, while the straddle on Tuesday, 23rd April, when VIX fell 20% is 180, suggesting that on a closing basis premiums never went as wild as VIX. So it was just another Tuesday for option premiums, though the impact would have been a tad higher on an intraday basis. My sense is that VIX needs to sustain above 16 to elucidate higher fluctuations in option premiums.”
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Published: 07 May 2024, 08:03 PM IST
