What is the VIX - volatility index? How is it calculated? What is the formula for calculating it? In what relation do the VIX and the Nifty move? Does the VIX drive Nifty or is it the other way round? -Karan Shah
Volatility index captures the rate at which the underlying index is expected to change in the short term.
The National Stock Exchange is the first to introduce volatility index in India on Nifty, called India VIX. The Bombay Stock Exchange has also introduced it on Sensex.
Realized Volatility (REAL-VOL) Index.
India VIX is a volatility index based on the Nifty 50 Index option prices. India VIX is computed using out-of-the-money option contracts. The NSE identifies the suitable out-of-the-money option contracts using forward index level. The forward index level helps in determining the at-the-money strike, which in turn helps in selecting the best option contracts. The forward index level is taken as the latest available price of Nifty futures contract for the respective expiry month.
From the best bid-ask prices of Nifty 50 options contracts, a volatility figure in per cent is calculated which indicates the expected market volatility over the next 30 calendar days.
VIX is just an indicator that foretells things to happen on underlying index Nifty. The value of VIX was the highest (on closing day basis) at 85.13 on November 17, 2008, while the NSE's S&P CNX Nifty touched its lowest point of 2558.15 on November 20, 2008.
So, when the markets witness a sharp upside or downside during periods of volatility, the VIX tends to rise.
On an intra-day basis, the volatility index touched a low of 8.74 on May 21, 2008.
The NSE has explained very well about the volatility index at www.nseindia.com/conten
t/vix/white_paper_India
VIX.pdf
How do I hedge against rupee appreciation in India as an individual investor? I would like to do this as an insurance against a USD asset purchased at the current USD/INR rate. - Sameep
There is no common or readymade tool to hedge a position for currency risk. Various factors such as holding period, underlying asset price movement and macro/micro global and domestic economic conditions come into play while adopting strategy to ward off currency risk. It is individual and need-specific. One has to take a financial advisor (either banks or an investment advisor) before taking hedge. Having said this, one has to be very careful in selecting bankers also, as there has been reports of a lot of mis-selling. By having a clear stand on your objectives or goals, you can avoid such things.
I am long on Bharti Airtel June futures (one lot) at Rs 302. Please analyse and advise. - Rajesh Dalvi.
Bharti Airtel (Rs 305.1): While the medium and long term outlook remains negative for Bharti Airtel, in the immediate term it could move in a narrow range. The stock could go up to Rs 324, if the current reversal in trend sustains. The stock finds support at Rs 285, and the crucial one at Rs 265. A close above Rs 324 has the potential to lift the stock towards Rs 352.
F&O pointers: The Bharti Airtel June futures witnessed unwinding of long positions on Friday. This indicates that traders are not willing to carry over their postion. Option trading indicates Rs 280-320 range for the counter.
Strategy: Hold your long position with a stop loss at your entry level (on a closing day basis).
I have sold Hindustan Unilever June series 440 call at Rs 4, please advise me on my position. - Chandrakala Bane
Hindustan Unilever (Rs 429): The long-term bullish outlook remains intact for Hindustan Unilever, as long as it remains above Rs 375. HUL has the potential to reach Rs 480, if it holds on to that level.
F&O pointers: The HUL futures added fresh longs. Option trading indicates a positive bias.
Strategy: Hold your position, as you make best out of time value.
I am holding one short position on L&T at Rs 1,300 and a long in one lot of Cairn at Rs 326 - Sushil
Larsen & Toubro Rs 1,315: The stock rules at a crucial level. It finds immediate resistance at Rs 1,347 and the support at Rs 1,252. A close below that level will change the medium-term outlook to negative. In that event, L&T could touch Rs 1,020. A close above Rs 1,347 will lift L&T to Rs 1,396.
F&O pointers:
Unwinding of long positions was seen on L&T. Option trading indicates a narrow range for L&T.
Strategy: If you can afford hold it with a stop loss at Rs 1,347.
Cairn: The outlook remains neutral for Cairn India. It is expected to move in a range of Rs 300-340.
F&O pointers: Options are not that active. A little cues available suggests negative bias.
Strategy: If you can afford hold your long position with stop loss at Rs 306.
NOTE: The analysis and opinion expressed in this column are based on F&O data available at this point of time and on technical analysis based on past price movements. There is risk of loss in trading.
Feedback may be sent to f&o@thehindu.co.in or blfuturesoptions @gmail.com