8/18/2020 VIX as a PredictorInsights

Insights
(https://www.fundsindia.com/blog)

VIX as a Predictor
AUGUST 18, 2020 . MANAS MURALEEDHARAN (HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/MANAS)

EQUITY RESEARCH (HTTPS://WWW.FUNDSINDIA.COM/BLOG/CATEGORY/EQUITIES)

(https://i0.wp.com/www.fundsindia.com/blog/wp-content/uploads/2020/08/VIX-Predictor_Blog_Banner.jpg?ssl=1)

What is VIX?

VIX is a volatility index which measures the market’s expectation of volatility or price range over the near term. India VIX is a
volatility benchmark based on the NIFTY Option prices. It measures the expected fluctuation in NIFTY over a period of 30 days.
A higher the value of VIX means higher the fluctuations in either direction over the next 30 days.

How we can determine the price range of Nifty using VIX?

If India VIX is 24, it implies the price range of NIFTY for next 1 year will be between +24% and -24% from the current price. For
example, If NIFTY is at 11000, then the expected price range of Nifty for 1 year is between 8360 and 13640. We can calculate
expected volatility for a week using the formula VIX/Sqrt (365/n)). n will be 7 if we want to calculate for a week.

So, for a week, expected volatility will be [24 / Sqrt (365/7)] which is equal to 3.32%. So, the expected NIFTY price range for the
week is between 10634 and 11366.
Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo
(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)

https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 1/9
8/18/2020 VIX as a PredictorInsights

Does VIX have predictive power?

We have backtested using VIX and NIFTY50 data for the period of 5 years to know the efficacy of VIX in predicting the price
range. Same as the above example, If VIX is at 24 and NIFTY is at 11000, then the expected range for NIFTY is 10634 and
11366. The price range for a week is calculated historically on a rolling basis.

When we checked the probability of week’s high and low falls within the projected price range. It comes at 57%. So, this
number doesn’t seem to be exciting.

But when we checked, what is the probability of next week’s close falling within the projected price range and That comes to
77%. This number seems much better now. So, now we know NIFTY is expected to close within the projected price range 75
per cent of the time on a weekly basis.

How can we use this information to trade?

We can use it in many ways. Here we will show you a very basic way of using this information to take an Iron Condor strategy in
the NIFTY weekly option contract. An Iron Condor is a covered credit spread strategy that benefits from the passage of time
(theta) and decreases in implied volatility (Vega).

For example, on 6th August 2020, NIFTY is at 11200.15 and VIX is at 23.15. The projected price range for 1 week will be 10841
and 11559. Following position can be taken.

Sell 11500 Call 13/08/20 expiry: Rs. 18 approx.

Buy 11600 Call 13/08/20 expiry: Rs. 8 approx.

Sell 10900 Put 13/08/20 expiry: Rs. 28 approx.

Buy 10800 Put 13/08/20 expiry: Rs. 16 approx.

Net Credit: 22 Points

Max Reward: 22 Points

Max Risk: 78 Points

Risk reward ratio: 3.5:1

Breakeven points: 11522 (11500+22) and 10878 (10900-22) which is approximately our projected price range.

Nifty closed on 13th August at 11300 which is between 11500 and 10900. We would have made Rs 1650 (22 points) profit.

Can this be improved?

The answer is Yes.

This trade can be taken only when there is a risk-reward ratio better than 2:1.

We have predicted the volatility and not the direction of the market. Along with this if we use trend indicators, we can
Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo
(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)
improve this trading methodology.

https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 2/9
8/18/2020 VIX as a PredictorInsights

We think we have created enough interest for you to explore further. We left it open for investors for doing further research on
this topic and add VIX to their trading arsenal.

 Post Views: 287

Share this:

 (https://api.whatsapp.com/send?
text=VIX%20as%20a%20Predictor%20https%3A%2F%2Fptop.only.wip.la%3A443%2Fhttps%2Fwww.fundsindia.com%2Fblog%2Fequities%2Fvix-as-a-predictor%2F19270)

 (https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270?share=facebook)

 (https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270?share=twitter)

 (https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270?share=linkedin)

 (https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270?share=reddit)  More

Related Articles

(https://www.fundsindia.com/blog/equities/u
rsi-more-effectively-part-iii/2384)
Using RSI More Effectively - Part III
(https://www.fundsindia.com/blog/equities/u
rsi-more-effectively-part-iii/2384)

We take the discussion of RSI Range

Shift that was discussed last week. We
take a look at a couple of examples
(https://www.fundsindia.com/blog/covid19/time-
(https://www.fundsindia.com/blog/mf- which would provide a better
to-get-active-on-passive-funds/19001) research/fundsindia-reviews-whats- understanding of the concept.  The
happening-with-midcap-funds/13735)
May 3, 2013
In "Equity Research"
Time to Get Active on Passive Funds?
FundsIndia Reviews: What's
(https://www.fundsindia.com/blog/covid19/time-
to-get-active-on-passive-funds/19001) happening with midcap funds
(https://www.fundsindia.com/blog/mf-
June 25, 2020
research/fundsindia-reviews-whats-
In "COVID19"
happening-with-midcap-funds/13735)

June 13, 2018

In "Advisory"

Read Previous Article (https://www.fundsindia.com/blog/monthly-market-insight/monthly-market-insight-

july-2020/19255)

Read Next Article (https://www.fundsindia.com/blog/equities/vix-

as- Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo
(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)

https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 3/9
8/18/2020 VIX as a PredictorInsights

Get FundsIndia’s
a- articles delivered straight to your inbox!
predictor/19270)
Enter your email address to get:

Mutual fund recommendations from experts

Buy, hold or sell calls for stocks

Investment tips and tricks

All the latest news from Fundsindia.com

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Email Address

Subscribe

Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo

(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)

https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 4/9
8/18/2020 VIX as a PredictorInsights

FundsIndia Features: SIP Calculator

(https://www.fundsindia.com/blog/mf-
basics/fundsindia-features-sip-
calculator/16462)
ANIRBAN CHAKRABORTY
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/ANIRBAN)

FundsIndia Explains: Step-up SIP

(https://www.fundsindia.com/blog/mf-
basics/fundsindia-explains-step-up-
sip/16148)
ANIRBAN CHAKRABORTY
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/ANIRBAN)

Outdated financial advice parents should

avoid giving
(https://www.fundsindia.com/blog/back-to-
basics/outdated-financial-advice-parents-
should-avoid-giving/15219)
VIDYA BALA
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/VIDYA)

What are the benefits of investing in mutual

funds?
(https://www.fundsindia.com/blog/back-to-
basics/what-are-the-benefits-of-investing-in-
mutual-funds/12331)
FUNDSINDIA DESK
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/FUNDSINDIADESK)

What is a mutual fund and why should you

invest in it?
(https://www.fundsindia.com/blog/back-to-
basics/what-is-mutual-fund-why-
invest/12216)
FUNDSINDIA DESK
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/FUNDSINDIADESK)

7 Reasons to start a SIP

(https://www.fundsindia.com/blog/personal-
finance/7-reasons-to-start-a-sip/11997)
SHWETA NICHANI
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/SHWETA)

FundsIndia explains: When is it a good time

to invest?
(https://www.fundsindia.com/blog/back-to-
basics/fundsindia-explains-when-is-it-a-
good-time-to-invest/11672)
MUTUAL FUND RESEARCH DESK
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/MFRESEARCH)

7 reasons why you should invest in Mutual

Funds
(https://www.fundsindia.com/blog/back-to-
basics/7-reasons-why-you-should-invest-in-
mutual-funds/11066)
APARNA HARI
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/APARNA)
Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo
(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)

https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 7/9
8/18/2020 VIX as a PredictorInsights

FundsIndia explains: Closed-ended Fixed

Income Mutual Funds
(https://www.fundsindia.com/blog/back-to-
basics/fundsindia-explains-closed-ended-
fixed-income-mutual-funds/10544)
MUTUAL FUND RESEARCH DESK
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/MFRESEARCH)

FundsIndia Explains: Why all equity funds

aren’t the same
(https://www.fundsindia.com/blog/back-to-
basics/fundsindia-explains-what-are-equity-
funds/9210)
MUTUAL FUND RESEARCH DESK
(HTTPS://WWW.FUNDSINDIA.COM/BLOG/AUTHOR/MFRESEARCH)

FundsIndia is India’s friendliest online-only investment platform. Built on robust technology, FundsIndia gives users
access to mutual funds from leading fund houses in India, corporate fixed deposits, stocks from the BSE and various
other investment products, all in one convenient online location. In short, FundsIndia is your one stop shop to build
wealth.

(https://itunes.apple.com/in/app/fundsindia/id1047151768?mt=8)

(https://app.appsflyer.com/com.fundsindia?pid=FIHomepage)

ABOUT FUNDSINDIA

Media (http://www.fundsindia.com/pages/media/)
Partners (http://www.fundsindia.com/pages/partners/)
Careers (http://careers.fundsindia.com/) Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo
(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)

https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 8/9
8/18/2020 VIX as a PredictorInsights

Become an Affiliate (https://pages.fundsindia.com/pages/fundsindia-affiliate-program/)

FAQs (https://help.fundsindia.com/)
Reach us (https://pages.fundsindia.com/pages/contact-us/)
Privacy (https://pages.fundsindia.com/pages/privacy/)
Terms & Conditions (http://www.fundsindia.com/pages/terms/)

OUR OFFERINGS

Top Mutual Fund Schemes (https://www.fundsindia.com/select-funds)

Money Mitr (https://www.fundsindia.com/content/jsp/moneymitr.do)
Investment Calculators (http://www.fundsindia.com/content/jsp//calculators/MutulfundSipCalcAction.do?method=sipCalcHome)
Funds Explorer (http://www.fundsindia.com/products/mutual-fund/all)
Mutual Fund Categories (https://www.fundsindia.com/products/mutual-fund/category)
Knowledge Center (https://www.fundsindia.com/knowledge-center.html)

WE ARE SOCIAL

(https://www.facebook.com/fundsindia) (https://www.twitter.com/fundsindia)

(https://www.linkedin.com/company/fundsindia) (https://www.youtube.com/user/FundsIndia)

(https://www.instagram.com/fundsindia)

Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements before choosing a fund, or designing
a portfolio that suits your needs.

Wealth India Financial Services Pvt. Ltd. (with ARN code 69583) makes no warranties or representations, express or implied, on products offered
through the platform. It accepts no liability for any damages or losses, however caused, in connection with the use of, or on the reliance of its
product or related services. Terms and conditions of the website are applicable.

Apple and the Apple logo are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.,
registered in the U.S. and other countries.The Android robot is reproduced or modified from work created and shared by Google and used
according to terms described in the Creative Commons 3.0 Attribution License.

SEBI Reg. No. INZ000241638 | ARN - 69583 (https://www.fundsindia.com/ARN/ARN69583.pdf?x40518)

Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo

(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)

https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 9/9
8/18/2020 VIX as a PredictorInsights

Sponsored

Getting this Treasure is impossible! Prove us wrong!

Hero Wars

Robert Redford's Daughter Is Probably The Most Beautiful Girl In The World
Healthy George

She Was Asked to Leave the Airport

Student Sea

Prepare Yourself, This Actress Is Actually Gorgeous In Real Life

Dailyforest

Do You Speak English? Work a USA job from home in Congo, The Democratic Republic Of The
Work from Home | Search Ads

Africa's Richest and Poorest Countries of 2018 - Check Out Congo, The Democratic Republic Of The
Rank
Everydaychimp

ALSO ON FUNDSINDIABLOG

New Fund Offer – India Budget 2020-21 – Why you shouldn’t FundsIndia
Motilal Oswal Nifty … Conservative and … stop your SIPs (or … Recommends: Birla …
a year ago • 1 comment 7 months ago • 2 comments 10 months ago • 2 comments a year ago • 10 comments

Know more about Motilal Budget 2020-21 was Don't stop your SIPs unless With a return of 9.6 per cent
Oswal Nifty Midcap 150 uneventful, predominantly you have achieved your annually in the last five
Index Fund, which is an … ‘incremental’ in nature, … goals. Plan and invest … years, Birla Sun Life …

What do you think?

2 Responses

Upvote Funny Love Surprised Angry Sad

0 Comments FundsIndiaBlog 🔒 Disqus' Privacy Policy  Login

 Recommend t Tweet f Share Sort by Best

Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo

(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)
Start the discussion…
https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 5/9
8/18/2020 VIX as a PredictorInsights

LOG IN WITH
OR SIGN UP WITH DISQUS ?

Sponsored

Getting this Treasure is impossible! Prove us wrong!

Hero Wars

Robert Redford's Daughter Is Probably The Most Beautiful Girl In The World
Healthy George

She Was Asked to Leave the Airport

Student Sea

Do You Speak English? Work a USA job from home in Congo, The Democratic Republic Of
The
Work from Home | Search Ads

Africa's Richest and Poorest Countries of 2018 - Check Out Congo, The Democratic
Republic Of The Rank
Everydaychimp

Melissa Rauch Down Sized Her Bikini (Photos)

Novelodge

(https://www.fundsindia.com/registration/signup)

View all posts

Back to Basics
(https://www.fundsindia.com/blog/category/back-
Facebook
to-basics/) (https://www.facebook.com/fun
Sign up with FundsIndia (https://www.fundsindia.com/content/jsp/registration/lo
(http://www.fonts.com/BannerScript/PublishersUsedFont/08983f2b-1de0-44cf-ba71-4f5d2a83bf64)

https://www.fundsindia.com/blog/equities/vix-as-a-predictor/19270 6/9