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India VIX hits an 8-month high

The India VIX or volatility index — a gauge of stock market’s expected volatility — is on a high.

Written by Devangi G | Mumbai |
February 10, 2011 8:42:55 am

The India VIX or volatility index — a gauge of stock market’s expected volatility over the next one month — extended its gains for the week as it closed above the 25 mark. The index not only gained 5 per cent in the week so far but has also reached its highest level since June 2010.

Ideally,from its inherent ability to reflect the uncertainty among traders and historical moves,the index seems to be standing at a crucial juncture; any rise above this mark indicate a further plunge for the market going forward,feel a section of derivative experts.

According to Savio Shetty,research analyst — institutional derivatives,Prabhudas Liladhar,“If we compare the market fall of about 1,000 points since early November till now,the VIX has only moved from 21.53 to 25. Such movement does not necessarily reflect the traders’ sentiment efficiently.”

This is because the calculation of VIX considers the pricing of mid as well as far month in-the-money options,which has lesser liquidity at the moment.

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