Can I use the India VIX to adjust my options strategies?

India VIX plays a crucial role in options trading. It is calculated using the current and next month’s NIFTY options, assuming that the option premiums at different strike prices represent the market’s implied volatility. Since option premiums are directly influenced by volatility, traders can use India VIX to make informed buy and sell decisions.

How You Can Adjust Your Strategy for Options Trading Using India VIX

• Trading in a High VIX Environment

When India VIX is high, it indicates that the market expects larger price swings. This impacts options in the following ways:

• Options premiums tend to be higher due to increased implied volatility.
• Market fluctuations may be more pronounced, requiring careful risk management.

Approach for Option Buyers

• Some traders consider buying options in high volatility as larger price movements can impact option values.
• You can consider strategies like Straddles and Strangles that are designed for uncertain but wide market movements:
• Straddle: Buying both a Call and a Put at the same strike price.
• Strangle: Buying an Out-of-the-Money (OTM) Call and an OTM Put at different strike prices.

Approach for Risk Management

• Some traders use hedging strategies to manage exposure to sudden market moves.
• Common risk management strategies include:
• Protective Puts: Buying Puts to offset downside risk in stock holdings.
• Collar Strategies: Combining a Put purchase with a Call sale to set a defined risk range.

Cautious Trading Approach

• High volatility can mean unpredictable price swings. Some traders choose to:
• Reduce position sizes to limit exposure.
• Wait for clearer market signals before making decisions.
•  Trading in a Low VIX Environment

A low VIX suggests the market is relatively stable, leading to:

• Lower option premiums, as implied volatility is reduced.
• Less frequent large price movements, which may influence strategy choices.

Approach for Option Sellers

• Some traders consider strategies that benefit from lower volatility, such as:

1. Credit Spreads: Selling an option and buying a cheaper one to collect a premium.
2. Iron Condors: Using a combination of Put and Call spreads to take advantage of a range-bound market.

Market Exposure Considerations

• Lower volatility may lead some traders to:
• Adjust their position sizes based on market stability.
• Use spread trading where a trader simultaneously buys and sells options contracts of the same underlying asset but with different strike prices, expiration dates, or both.

Where to Check India VIX on Share India

If you want to keep an eye on India VIX and overall market trends, you can check out our daily reports. They cover market sentiment, expert takes, trading suggestions, and key data points. You can find them in Share India’s Daily Research Reports.

Also, you can view real-time India VIX on the platform. Here’s how:

Step 1: Seach for ‘Indiavix’ in the the seach bar under the Watchlist section. 

Step 2: Click or tap on it to add it to your Watchlist and monitor the index in real time.

If you have any queries or want any help from us, you can contact the Share India support team via email at support@shareindia.com or by phone at 1800 203 0303.