Why Did India's Vix Fall 22 Percent in a Single Day?

India VIX fell 22 percent in a single day, good news or bad for traders?

One reason behind the increase in VIX could be NSE's decision to reduce the lot size of Nifty derivative contact from 50 to 25 from April 26.

Nifty option traders were surprised when India Vix fell by 22 percent at the beginning of Tuesday's trading session. India VIX indicates the volatility of Dalal Street in the short term.

  

The India Vix fell as much as 22% at the start of Tuesday's trading session in one of the worst one-day declines in the stock market's history. India VIX was calculated using the best bid and open interest of out-of-the-money near and mid-month Nifty option contracts that fell below the 10-mark. During the day, Nifty rose 0.5% to the day's high of 22,447.

“Such a sharp fall in IndiaVIX was last seen after the declaration of Lok Sabha election results. It fell by about 34% and 30% on the results day in 2014 and 2019. Apoorva Seth of Samco Securities said, "Today's fall is the biggest fall after these two falls."

The barometer measures market volatility expectations over the next 30 days. Low VIX means less volatility and high VIX means there will be more volatility in the market.

Deepak Jasani of HDFC Securities said,

"Traders might be considering the fact that geo-political tensions will ease and things are looking good on the domestic front. Vodafone Idea's FPO subscription numbers suggest that there is ample liquidity in the market and companies can be bought at a premium valuation. Money will be available, even if there are financial issues."

India VIX low means market boom?

Anand James, Chief Market Strategist, Geojit Financial Services said,
“Option traders react to such scenarios by reducing expectations of rising premiums, but today's sudden decline in VIX, especially when Nifty barely rose above 0.5%, needs to be taken into account when acting on VIX signals.”

One reason behind the increase in VIX could be NSE's decision to reduce the lot size of Nifty derivative contact from 50 to 25 from April 26.

“VIX is calculated based on the bid and bid basis of the near term as well as next month Nifty Option contract and the lot size of the contracts expiring from April 26 will be 25, which is half of the current contract, which will meet the bid demand. Can play a role in hardening.