India VIX is a volatility index based on the Nifty 50 Index Option prices. From the best bid-ask prices of Nifty 50 Options contracts, a volatility figure (%) is calculated which indicates the expected market volatility over the next 30 calendar days.
Uses of Volatility Index
Volatility Index offers great advantages in terms of trading, hedging and introducing
derivative products on this index. Investors can use volatility index for various purposes as
• Investors’ portfolios are exposed to the market volatility. Investors could hedge their
portfolios against volatility with an off-setting position in India VIX futures or options
• Volatility index depicts the collective consensus of the market on the expected
volatility and being contrarian in nature helps in predicting the direction. Investors
therefore could appropriately use this information for taking trading positions.
• Investors could also use the implied volatility information given by the index, in
identifying mis-priced options.
• Short sale positions could expose investors to directional risk. Derivatives on
volatility index could help investors in safeguarding their positions and thus avoid
systemic risk for the market.
• Based on the experience gained with the benchmark broad based index, sector
specific volatility indices could be constructed to enable hedging by investors in those