The VIX or Volatility index is the likely or anticipated take on the volatility in the market over the next 30 days of the investor or trader. And the index shares a negative correlation with the markets. If the market sees a bullish trend, an investor's portfolio of equity shall gain at the same time and the India VIX can be expected to go down and viceversa. To know about India VIX or Volatility Index in detail, click here.
In the Wall Street Journal report, Chief of new products at NSE was quoted as stating, "Given the wild swings in stocks in recent years, the need for volatility as an asset class to hedge portfolios has become much more pronounced".
NSE VIX Futures contract linked to the VIX index on the Nifty with a minimum contract size of Rs. 10 lakh will have three weekly contract available for trading and would feature as or its contract symbol would be IndiaViX. Further the contract giving a direction on volatility to the traders would be settled every Tuesday. However, with a high minimum contract size, the IndiaViX contract does not seems to be apt for retail investor class.
To encourage participants trade in the segment, a rebate in the range of 10%-40% in respect of transaction charges is being touted by the exchange for a limited period until March 31, 2014 subject to further review on the basis of the performance of the VIX Futures contract.
Through the launch of VIX futures trading, the exchange aims at stimulating the demand of domestic institutional investors (DIIs) in the futures and options segment.
The new VIX Futures contract shall serve as another tool for hedging risk, an addition to the already existent futures and options contract that are linked to the Sensex and Nifty. The betting on the new NVIX futures contract with gains would largely depend on the correctness with which the trader can anticipate the likely volatility in the near future.
At 12:25 pm, VIX futures on NSE linked to the India VIX was trading at 1,447.25 and the India VIX index was at 13.7725.