We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byMarina Holmes
Modified over 2 years ago
But all of them seek one thing above all else: Clarity. In this lesson, I will try to provide clarity on the India Volatility Index or India Vix in short. Some people enjoy dancing in the rain but some really hate getting drenched. Some people enjoy the stock market volatility but some get killed by the same volatility. Different people view the same thing differently. Copyright © 2009
Understanding Volatility Index – By Prof. Simply Simple TM First of all, Volatility denotes the extent to which the value of our investment may be subject to the mood of the market over a given period of time. In other words, volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. Commonly, it is observed that the higher the volatility, the riskier the security. Copyright © 2009
A volatility index tells us about the market expectations over the short term, usually a month. It tries to capture the sentiments of the market whether the market is in a complacent or anxious mood. Volatility is what makes our short-term investments look more dangerous than our long-term investments. So what is Volatility Index? Copyright © 2009
Some investors feel that surviving short-term market volatility is more challenging than surviving in the long run.
Volatile markets can turn upside down in very quick time. In fact, John Maynard Keynes himself once said that markets can remain irrational longer than you can remain solvent. So every now and then, we may see investors getting caught on the wrong side of market irrationality. A volatility index captures implied volatility in the market. Now… Copyright © 2009
Implied volatility draws its conclusions from the present pricing of options and not from historic volatility figures. It is expressed in terms of a percentage like 20%, 30%, etc. In a range-bound market, where prices are moving gradually, the volatility index remains low. It is believed that when the volatility index is less than 20%, the market is in a complacent mood and is not expecting any catastrophe. Okay, so how does it work? Copyright © 2009
A low volatility index is therefore, associated with price rise. But when the volatility index is greater than 30%, then the market is in the fear zone. A high volatility index is associated with a fall in market prices. In this manner, a volatility index helps investors gauge the mood of the market. Now… Copyright © 2009
India Vix is the first volatility index launched in India by the National Stock Exchange. For your additional information, the Chicago Board of Options Exchange (Cboe) introduced the first volatility index for the US markets in Cboe Vix uses the Standard and Poors 500 Index Options for calculating implied volatility, which is reflected by the changes in pricing of options. India Vix is based on the Nifty 50 Index Option prices. So what is the India Volatility Index? Copyright © 2009
It calculates the percentage of volatility by using a detailed computational methodology which relies on the best bid and offer price of the Nifty 50 index call and put options. Other than gauging the mood of the stock market, a volatility index can also be used to design derivative products in which the volatility index is used as an underlying asset. Investors who are averse to volatility can hedge their portfolio by purchasing derivative products based on the volatility index. Okay, so how does it work? Copyright © 2009
And investors with a good appetite for volatility can take the risk by selling the same derivatives product. All in all, a volatility index provides a new game of hedging and trading for market participants. But how is hedging through volatility index derivatives different from hedging through single stock or index derivatives? Well, hedging through single stock or index derivatives is like purchasing a comprehensive insurance which covers many risks that you may not be even aware of. But a derivative product based on volatility index keeps its focus narrowit provides a hedge against only market volatility. Copyright © 2009
So if the prices of your companys shares are likely to fall due to poor quarterly results, then purchasing volatility index derivatives may not protect you. The market may remain calm even though your own individual portfolio may be performing badly. But if the prices of your stocks are likely to fall due to poor market sentiments and not due to any company- specific reason, then a volatility index derivative may be your right bet. Finally… Copyright © 2009
To Sum Up What: Volatility index measures implied volatility in the market over the short term, usually a month. India Vix is the first volatility index launched by the National Stock Exchange. How: India Vix calculates volatility by computational methodology, which relies on the best bid and offer price of the Nifty 50 index call and put options. What: Volatility index can also be used for designing derivative products in which the volatility index is used as an underlying asset. Copyright © 2009
Hope you have now understood the concept of Volatility Index Do write to me at
Understanding Index Funds – By Prof. Simply Simple TM An index fund is a portfolio constituted of stocks belonging to some market index such as the Sensex.
Chapter 29 – Applications of Futures and Options BA 543 Financial Markets and Institutions.
Equity Linked Debentures – By Prof. Simply Simple With the high volatility in the equity markets, investors are increasingly looking at financial products.
Comments from Instructor: A detailed yet analytical paper, which puts class materials into good application, and takes one step further, if simple, to.
We normally hear of promoters raising capital by issuing shares in the market. Understanding Buyback of Shares – By Prof. Simply Simple TM.
Vicentiu Covrig 1 Options Options (Chapter 19 Jones)
INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 18 Option Valuation.
But what do ‘Exchange Traded Funds’ mean? Let me try to explain this term & its various constituents to you in the next few slides… Recent data has shown.
Chapter 16, Section 3. Understand what a futures contract is, and how and why people use them Learn the meaning of “puts” and “calls,” and how investors.
Simplifying Call Option – By Prof. Simply Simple TM I hope the last lesson on ‘Options’ helped you in getting to understand the concept. In continuation.
Understanding “Margin Money” in derivatives – By Prof. Simply Simple TM I hope the last lesson on ‘Put Option’ in the real world helped you in getting.
Understanding Price-to-book Ratio – By Prof. Simply Simple Simply speaking, the Price-to-book ratio (i.e. P/B ratio) is the ratio of Price of a stock to.
Equity Linked Debentures With the high volatility in the equity markets, investors are increasingly looking at financial products which provide stability.
The FEAR Gauge An Introduction to the Volatility Index by Amy Ackers.
We all know that bonus shares exist. But why are they issued in the first place? Let me try & simplify this for you… Why Are Bonus Shares Issued? – By.
Finance 300 Financial Markets Lecture 26 © Professor J. Petry, Fall 2001
Investment Challenge Program January 2003, Volume III, Issue 12 Website of the Month: Investors, Quote of the Month: 2002 CBOE Volatility Index Check out.
DERIVATIVES. Introduction Cash market strategies are limited Long (asset is expected to appreciate) Short (asset is expected to depreciate) Alternative.
Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Chapter 19 An Introduction to Options.
Options: Introduction. Derivatives are securities that get their value from the price of other securities. Derivatives are contingent claims because their.
Options By: Kyle Lau, Matthew Cheung, and Fabian Kwan.
Investment and portfolio management MGT 531. Lecture #31.
INVESTMENTS: Analysis and Management Second Canadian Edition INVESTMENTS: Analysis and Management Second Canadian Edition W. Sean Cleary Charles P. Jones.
Vicentiu Covrig 1 An introduction to Derivative Instruments An introduction to Derivative Instruments (Chapter 11 Reilly and Norton in the Reading Package)
Chapter 19 Options. Define options and discuss why they are used. Describe how options work and give some basic strategies. Explain the valuation of options.
INVESTMENTS | BODIE, KANE, MARCUS Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written.
Clarifications An uninformed investor is one who has no superior information –Uninformed is not the same as uneducated or ignorant. An informed investor.
In both bonus shares and stock split the number of shares of a company increases. But what are bonus shares and what are stock splits and more importantly.
Volatility By A.V. Vedpuriswar June 12, Basics of volatility Volatility is a huge issue in risk management. Volatility is the key parameter.
But familiarity with bond laddering, an investment strategy, could help deal with what is called reinvestment risk. I will try to explain Bond Laddering.
Welcome! April 11, Options Continued Stock Recap.
R ECENT DEVELOPMENT IN GLOBAL FINANCIAL DERIVATIVES.
© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Some Lessons From Capital Market History Chapter Twelve.
Derivatives Markets The 600 Trillion Dollar Market.
Chapter 16 Options on Stock Indices and Currencies Options, Futures, and Other Derivatives, 8th Edition, Copyright © John C. Hull
Options on Stock Indices and Currencies Chapter 15 Options, Futures, and Other Derivatives, 7th International Edition, Copyright © John C. Hull
Options on Stock Indices and Currencies Chapter 15 1 Options, Futures, and Other Derivatives, 7th Edition, Copyright © John C. Hull 2008.
Chapter 18 Derivatives and Risk Management. Options A right to buy or sell stock –at a specified price (exercise price or "strike" price) –within a specified.
Warrants On 30 th October Warrants Warrant Types Warrants are tradable securities which give the holder right, but not the obligation, to buy.
OPTIONS AND THEIR VALUATION CHAPTER 7. LEARNING OBJECTIVES Explain the meaning of the term option Describe the types of options Discuss the implications.
Vicentiu Covrig 1 Options Options (Chapter 18 Hirschey and Nofsinger)
AIM How can we use derivative investments to enhance our portfolio? DO NOW What are stock options? OPTIONS AND FUTURES.
Vicentiu Covrig 1 Options and Futures Options and Futures (Chapter 18 and 19 Hirschey and Nofsinger)
CHAPTER 21 Option Valuation. Intrinsic value - profit that could be made if the option was immediately exercised – Call: stock price - exercise price.
Derivative Securities (Options): Puts & Calls Lockheed Martin (LMT) Transactions TransactionCost BasisSale PriceGain (Loss) Short 1, $54,225+$51,965-$2,260.
© 2017 SlidePlayer.com Inc. All rights reserved.