India VIX Plummets by 22% in a Single Day – Good or Bad News for Traders?

The India VIX experienced a sudden 22% drop in the early trading session on Tuesday, leaving traders surprised. The India VIX acts as an indicator of short-term volatility in Dalal Street. The drop of up to 22% in India VIX at the beginning of Tuesday’s trading session marked one of the steepest declines in a single day in the history of the stock market.

The calculation of India VIX uses the open interest of near and mid-month Nifty option contracts based on the best bid and out-of-the-money, which dropped by 10 points. During the day, Nifty rose by 0.5% to reach a high of 22,447.

Market analysts suggest that such a sharp decline in India VIX has not been witnessed since the declaration of Lok Sabha election results. In 2014 and 2019, there were approximately 34% and 30% declines on result days. Today’s drop is noted as the largest drop after these two events.

The volatility barometer indicates expectations of market volatility in the next 30 days. A low VIX signifies lower volatility, while a high VIX indicates higher volatility in the market. Traders are contemplating whether geopolitical tensions will reduce and domestic issues are showing positive signs.

Anuj Singhal explains that India VIX typically drops after significant events. However, this time, it dropped ahead of any major event. Historical data shows that India VIX dropped by 30% on 23-05-2019 and 34% on 16-05-2014, both post-election days.

Looking ahead, it is expected that the market might stabilize within a limited range post the election results. The implications of India VIX’s unexpected decline are to be closely monitored by traders.