NSE kicks-off volatility index on real-time basis

The National Stock Exchange’s (NSE) move to disseminate quotes of its volatility index or VIX during trading sessions starting Monday is seen as a precursor to launching futures and options (F&O) contracts on the measure. So far, the exchange provided VIX — a measure of traders’ expectations of near-term risks based on options’ prices of Nifty’s 50 stocks — only at the end of every session. “The next obvious step would be launching F&O contracts on VIX, which will allow a wider number of traders to bet on the VIX,” said Siddarth Bhamre, head — derivatives, Angel Broking. NSE is believed to have approached the Securities and Exchange Board of India (Sebi) to permit derivative products on the VIX index. Currently, traders, mostly from global investment banks and proprietary, bet on an index’s or stock’s VIX using various combinations of options. These strategies are considered complex by less-savvy traders, with VIX not available real time, making it difficult for them to profit from the rise or fall in VIX during a trading session. “The pricing of options has improved in the past many months, with liquidity in these contracts improving. Once F&O contracts on VIX are launched, there will be better price discovery,” said Amit Gupta, derivatives strategist, ICICIdirect. The share of index options’ turnover in total turnover of NSE’s futures and options segment has risen to 34% in 2009-10 compared with 11% in 2006-07. In volatility trading, the trader is not betting on the direction of the market, but on the possibility of a sharp move on either sides. The volatility index rises ahead of an event such as the country’s election’s results or the Union Budget, where the outcome is unpredictable, and falls thereafter. Volatility traders look to capture sharp movements led by such events. Some brokers fear that launch of F&O contracts on VIX could negatively impact volumes in options segment, as specialised volatility traders could shift to such products because of lower costs.

Source http://economictimes.indiatimes.com/markets/stocks/market-news/NSE-kicks-off-volatility-index-on-real-time-basis/articleshow/6189134.cms