Definition
Volatility Index Strategies
Volatility index strategies use India VIX levels to decide whether to buy or sell options based on whether volatility is cheap or rich.
When India VIX is low, option premiums are cheap, favouring buying strategies like long straddles and calls; when VIX is high, premiums are rich, favouring selling strategies like iron condors and short strangles. Traders also watch for mean reversion, since VIX tends to fall back after spikes.
Indian traders treat India VIX as the master dial for Nifty and Bank Nifty option trading, adjusting position size and strategy as it moves. Because there is no retail-tradable VIX derivative, they express volatility views indirectly through the options whose prices VIX summarises.
Related terms
- IV Percentile / IV RankIV rank and IV percentile show where today's implied volatility sits relative to its own range over the past year.
- Iron CondorAn iron condor sells an out-of-the-money call spread and put spread to earn premium in a range-bound market with defined risk.
- India VIXIndia VIX is the volatility index that measures the market's expectation of near-term volatility, often called the 'fear gauge'.
- Implied VolatilityImplied volatility (IV) is the market's forward-looking estimate of how much a stock or index will swing, backed out from current option prices and expressed as an annualised percentage.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.