India Vix and it's correlation with options gamma

Trading
1

Hi,

I know that India Vix measures the volatility of the market.

My doubt is, is there any range in which market will flactuate between a certain range based on the vix points.

For example, if vix is 15, nifty might flactuate between 75 points and if vix is 20, then market trades in between 100 points. Is that how the correlation between vix and the market works ?

Also, sudden increase in vix spikes the gamma of the options which increases its price immediately. As a option seller, I have a hard time in understanding the correlation of vix, index movement and options.

Please throw some light on this.

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2

contrary to the popular belief gamma is not directly related to volatility.

volatility drives up the premium which means delta changed and hence gamma changed.

to know how the black scholes calculates the premium implied volatility is what you need to look at.

delta, gamma and vega are not leading indicators they just measure the value after the move is made. So you cannot forecast directly.

But by studying the formula you can find out if the option premiums are justified and then make a decision.

id recommend you to refer varsity for more theoretical know how

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3

  1. LTP ,Bids and Ask price determines every value of greek not the other way around. So ,price is god.

  2. Vix in theory means how much percentage up or down market can move point in time in a year.

  3. Vix just guide you at high level , best indicator is sum of Atm pricing or difference in price between two strikes.so gamma moves are delta movement in narrow time (difference in price between strike shoots up) as sudden increses in price mostly happens dues to supply and demand gaps)

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4

The vix is at around 15 right now, how many points or percentage can index move up or down ?

5

But the increase in premium happens only after vix indicates the move, right?

6

It’s the opposite actually
The variance for the near and mid month expiry computed separately are interpolated to get a single variance value with a constant maturity of 30 days to expiration. The square root of the computed variance value is multiplied by 100 to arrive at the India VIX value .

So participants decide price and price determines vix.

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7

In theory 15 % Annually, practically no one knows .

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8

VIX reacts after the move.

when there is panic people try to exit at market price and the option sellers will demand higher premiums, the bid/ask spread widens - thats the reason premiums go up.

LTP is a reflection of what has happened it will not tell the future

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