MC Explains: Why Vix has gone all 'thanda'

April 24, 2024 / 01:11 PM IST

All you need to understand is if the VIX is high, it means the market could swing quite a bit - up or down - in the coming months.

What's the deal with the Volatility Index (VIX)?

Ah, the VIX! It's like the mood ring of the stock market. When it goes up, it's like the market is saying, "Hey, we're feeling a bit uncertain or nervous about what's coming next."

Now, you know, why they call it the "fear index."

Also read: Sudden decline in Vix indicates correction ahead

So, what does the VIX measure exactly?

Well, think of it as a crystal ball, but for market movements over the next year. All you need to understand is if the VIX is high, it means the market could swing quite a bit - up or down - in the coming months.

I have heard VIX goes crazy around important events like elections or budget announcements?

Oh, it's party time for the VIX when there's something big on the horizon! Whether it's a major election or juicy earnings reports, traders start feeling jittery, and that shows up in the VIX.

But wait, I read on Moneycontrol VIX took a nosedive recently? What's up with that?

Oh, you read that? Yeah, it was like the VIX decided to do a happy dance! Turns out, folks were feeling relieved about some global tensions cooling off, so down went the VIX.

Also read: What does India VIX sharpest fall in 5 years mean for markets? | Market Minutes

Huh, interesting! But why isn't the VIX jumping around like it usually does during elections this time?

Ah, good question! It seems like the market has made up its mind and is feeling pretty chill about the election outcome. No more nail-biting suspense for now!

So, should we pop the confetti yet, or is there still a chance for the VIX to crash our party?

Well, hold on to your hats! Vix hovering at lower levels means that chances of it going any lower is lower! Heard of regression to mean? Yeah, the law of averages always catches up. So, the way to go for Vix is up, meaning volatility will only increase.

Oh, so markets could spike up or down, right?

Theoretically, yes. But traders suggest collapse in volatility at a time markets have been clawing back and are at elevated levels, may be a trigger for profit-taking. Remember, thus far indications are that there is very little risk to the election outcome. So the chances of downside is greater than upside. Net-net, with global uncertainty still lurking around and more election phases to go, the VIX might decide to boogie again. So, while things are looking sunny now, it's always good to keep an eye out for surprises!

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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