[ad_1]
Mumbai: The fall in fear gauge India VIX by 20%, the most in almost five years, on Tuesday, is a one-time adjustment ahead of the lot size of the Nifty being halved to 25 shares after the current monthly expiry of Nifty futures and options contracts on Thursday.
VIX tends to rise when uncertainty increases and falls when it reduces.
All contracts—weekly, monthly, quarterly and half-yearly—from Friday will be available with the revised lot size of 25 shares.
Market mavens like Jimeet Modi of Samco Securities said the lower lot size will lead to a halving of margins (to trade) to ₹90,000 a lot from ₹1.8 lakh for traders of futures contracts and sellers of options contracts.
“This could result in increased volumes by participants and narrowing bid-ask (buy-sell) spreads. As VIX is calculated based on index options’ bid-ask spreads, the narrowing spreads will result in lower VIX levels,” explains Modi.
“The reduction in lot sizes is a key factor behind the falling VIX,” said director of Equity Strategy at Wealth Mills Securities. “This, combined with a market tightness, particularly at higher levels, suggests potential exhaustion, further contributing to the lower volatility reading.”
Index options are a big hit among retail, high networth individuals (HNI) and proprietary traders. In notional terms, index options volumes accounted for 98.4% of the ₹79,928 trillion notional turnover of total derivatives contracts on NSE.
The share of prop traders stood at 59.6% of gross notional turnover in April-February FY24, followed by individual investors (26.3%), foreign investors (5.9%), corporates (3.8%), DIIs (0.1%) and others (4.3%).
Current level of India VIX stands at 10.27 against the one-year average of 12.44.
The Nifty lot value is kept within ₹5-10 lakh. Whenever, the value exceeds ₹10 lakh—the April contract lot was worth ₹11.2 lakh—NSE revises the lot size so that the contract remains in the ₹5-10 lakh band.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it’s all here, just a click away! Login Now!
Download The Mint News App to get Daily Market Updates.
More
Less
Published: 25 Apr 2024, 06:30 AM IST
[ad_2]
Source link
