NSE to launch VIX derivatives from February 26, measuring swing expectations; investors can take weekly positions

The National Stock Exchange has announced it would be starting a product which allows investors to bet on market volatility by the end of the current month.

“Futures contracts on India VIX shall be made available for trading in the futures & options segment from February 26,” said an announcement on the exchange website.

The product would be a derivative based on the NSE’s India VIX, a volatility index, the so-called ‘fear gauge’ which measures traders’ expectations of how wildly the market might swing in the days ahead, on the basis of index options prices.

Investors will be able to take weekly positions on market volatility, with three contracts each with a tenure of one week. The minimum value of each contract will be Rs 10 lakh.

The margin requirement globally for such instruments is four to five per cent. Meaning, investors can trade on volatility for as little as Rs 50,000, according to an expert. The exchange would need to issue a separate circular on this, he said. An exchange spokesperson said a separate circular was likely but declined to comment on details.

The exchange applied to start trading on a volatility-based derivative in 2010. The stock market regulator did not allow the product, with sources indicating it had some initial discomfort with the speculative nature of the product. Meanwhile, the exchange continued to provide live values of the Volatility Index since July 2010, after launching it in 2009 based on end-of-day prices.

The index value is arrived at on changes in the price of Nifty options and acts as an indicator of expected volatility over the next 30 days. Higher the value, the greater the expected volatility. Traders currently use a combination of existing index derivatives to take a position on the expected market volatility, say experts. The introduction of a direct derivative for volatility will make such trades less complicated and also more cost-effective, they added.

For more visit: Business Standard

Similar Posts:

• Rs 325-crore trading in VIX futures on Day 1
• BSE starts delivery-based stock F&O
• Sebi unveils measures to tackle market volatility, curbs short selling
• BSE to launch SIPs for retail investors
• Volatility index dips to all-time low; the chances of a correction become higher