Lets us talk most important learning of event i.e. Election based trading..... Effect of last election on nifty and VIX i.e.volatility index.
What is VIX India?
VIX is volatility index
showing market momentum and market’s expectation of volatility over the
near term. Volatility is often described as the “rate and magnitude of changes
in prices" and in finance often referred to as risk. Volatility Index is a
measure, of the amount by which an underlying Index is expected to fluctuate.
What is importance of VIX?
Generally Vix provide view for overall sentiment of market through which one
can get idea of market and fear involved in the market.
Basic of VIX.....
Higher the VIX higher will be fear or uncertainty
Lower the Vix index lower will be fear
So, one can get an idea of Money
flowness where VIX index is stable or higher or lower.
Read basic knowledge of volatility index at below given link....
https://www.derivativelearn.com/2019/03/facts-of-vix-basic-use-importance-and.html
Will analyse one by one election movement with respect to change in nifty and vix index.
Taken data of entire may months for analyzing nifty movement, in may 18, nifty rise almost 18% and vix close at same level due to big movement in index.
Learning from the chart we can conclude that due to huge movement, vix close at 52 level same day but with in few days it came to 36 level. which is almost 50% down from pick level.
Lets us study 2014 data how it react during election time....
During entire may month nifty move in 5 % range. While on 2nd may nifty was at 6700 index and close on 30th may at 7220, almost 500 point gain in may month. While on Vix part starting of month it was near to 30 and mid of month made pick near 36 and on result day on 16th may it close down almost 34% with level of just 24 and by end of month it reach to 16. so, it down almost 100% from pick.
One can learn why option seller makes money in the market it is only reason of VIX falling and Theta value earn by seller.
Lets more focus on current situation in the nifty 2019.....
Here, We can see that in the April month nifty moved in range of almost 1.5% from April 1 to 25 April it is almost 50 point down in the index value but the same time VIX going up constantly from 17 to 24 on 25th April. In last two days it fall slightly due to holiday coming in stock market for almost 5 days including Sunday.
Learning: We have seen lot of detail in above chart, but what we can do for earning. Here, We can commonly conclude after studying both election period that VIX has rise vertically till election result out. So, in may 2019 it is expected to close near 28-30 before it reach election date of 23rd may 2019.
On the day of election one can short both call and put option below and above index rate on that date. It is expected to fall VIX from 30 to 15 in a period of 1 week. It can be good opportunity for option writer. Even one can book profit in the same days if position favors.
Look at the option chain of 25th April, 2019
One can see that option value of call and put both counting comes near 670 Rs. which is near 5.75%.
It is expected to rise near 7-7.5% by election date. One can closely check option premium both call and put. Before election nifty is expected to touch 12000 level and after election result comes as per poll expected movement in nifty might be near to 500 point maximum.
One can start tracking At The Money option premium till election result.
Thanks
Derivativelearn
0 Comments