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Below the Quote on India VIX by Anand James, Chief Market Strategist, Geojit Financial Services

"Seen in isolation, the present levels of VIX are consistent with historical trends, which usually witness a rise in VIX when previous peaks are re-visited. In early April 2024, when Nifty tested a new record peak, VIX was near 11, but now above 16, when we are again back in the vicinity of the record peak. Similarly, when in mid January 2024, when we saw a new peak in Nifty, VIX was 13.78, but three weeks later when Nifty returned to the same peak, VIX would rise to the 15-16 region, where it remained for the rest of February. What is raising eyebrows now is the steepness in the fall and rise of VIX in a small time frame. Just three weeks back, VIX had fallen to near record lows, after Nifty averted a major fall, having bounced off previous month’s low, thus calming investors.

While a lot can be explained in terms of historical trends, approach of record peaks, upcoming election results, and even the liquidity impact on lot size reduction in Nifty, the recent swings are difficult to be fully attributed to. Perhaps the right way to approach this is to acknowledge that while VIX and Nifty are positively correlated, more so in a large time frame, the strength of correlation is low, especially in the short term.

The mean of straddles during the time period of Feb to Apr 2024 is 198 with a standard deviation of 23, while the straddle on Tuesday, 23rd April, when VIX fell 20% is 180, suggesting that on a closing basis premiums never went as wild as VIX. So it was just another Tuesday for option premiums, though the impact would have been a tad higher on an intraday basis. My sense is that VIX needs to sustain above 16 to elucidate higher fluctuations in option premiums."

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