TRADE NIFTY PROFITABLY: DAY AND POSITIONAL TRADES by BALJEKAR DR. NIKHIL D

Author:BALJEKAR, DR. NIKHIL D [BALJEKAR, DR. NIKHIL D]
Language: eng
Format: epub, pdf
Publisher: UNKNOWN
Published: 2020-10-02T00:00:00+00:00

When investors are fearful, and markets are bearish, VIX will rise. When fear recedes, VIX declines . However, long-term low levels of the VIX have been associated with bull markets, where VIX at extreme lows signaled a major market advance.

VIX has grown to become one of the most popular gauges of investor sentiment and the volatility of the stock market . VIX is a measure of implied volatility, capturing the market’s expectation of 30-day volatility implied by the near-term options on the NSE 50 Index.

VIX reacts to sharp drops in NIFTY During major market meltdowns VIX ran up sharply, signaling a market bottom was near. Because VIX has a long-term trend cycle to it, however, the best way to view the VIX is with moving averages. (10- and 50-day moving averages), which allows for better identification of shortterm extreme levels when markets are overbought or oversold, irrespective of any longer term levels.

Spikes of the VIX are smoothed with a 10-day moving average.

•

• day moving average, the market conditions are clearly turning bearish.

•

• day moving average, the market conditions are clearly turning bullish.

• But when the deviation of the 10- and 50-day is stretched (different measures can be used to define “stretched”), a reversion to the mean occurs as the 10-day moving average returns back to the level of the 50-day moving average.

• This cycling of sentiment is a good contrarian indicator and can be used for better timing of market swings.

Conclusion

• The India VIX - implied volatility index for NSE 50 index options is

• explained and presented.

• The two indexes (India-VIX and NSE 50) move inversely

• That with the application of different moving averages to daily VIX prices, it is possible to identify overbought and oversold regions of NSE-50

This contrarian method provides a basis for better timing of the market for investors.

Option Volatility: Vertical Skews and Horizontal Skews:

One of the most interesting aspects of volatility analysis is the phenomenon known as a price skew. When options prices are used to compute implied volatility (IV), what becomes apparent from a look at all the individual option strikes and associated IV levels is that the IV levels for each strike are not always the same

- and that there are patterns to this IV variability.

While you may have seen IV values for a particular stock before, these usually are derived from an average (sometimes weighted) of all strikes, or near the money strikes, or even atthe-money strikes of the nearest trading month.

As you take a closer look, however, which we will do here, the variability of IV along the option strike chain will reveal what is known as an IV skew. There are two main groups of skews - Horizontal and Vertical.

The Vertical Skew :

In this case, the volatility changes depending on the Strike Price.

The Horizontal Skew:

This is a skew across Time (options with different expiration dates). Forward and Reverse Skews :

There are two main types of Vertical IV skews - Forward (positive) or

- Reverse (negative).

The options on stock market indexes have a permanent reverse IV skew.

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