Thursday, October 25, 2012

Implied Volatility of Nifty at Low

Implied Volatility of Nifty has hit a new low of almost 13%, which is also much lower than the actual volatility of Nifty.

Does that mean, we are expecting a lower volatility in future ?

To answer this question, we will look at some facts

a) Implied Volatility is lesser than realized volatility.
b) IV of far Month Nifty and Leaps is higher than near month ? Mostly it is the reverse.
c) IV of Underlying stocks have not fallen to same extent.
d) Intra-day volatility of Nifty has fallen recently.
e) Volumes in Nifty options have gone up


f) Volatility in Mid Cap Speculative Stocks have gone up.
g) There are movements in Nifty Underlying, but Volatility in nifty is in tight band.
h) There is a holiday season ahead
i) Liquidity is also coming from SGX nifty

I feel that fall in IV is more to do with traders moving away from trading in Nifty. There is excess cost associated in Nifty trading compared to its intra-day volatility. (As bunch of Nifty volumes are generated by intra-day trades).  Traders seems to have migrated to Mid Caps.Also FII seems to be more comfortable trading on SGX Nifty (Volumes have moved up over there)

But There seems to be opportunity to trade in Nifty :
a) If you just want to bet on Direction, Calls or Puts are comparatively cheaper than realized volatility.
b) Taking a long bet on Nifty straddle (Buy Call and Put simultaneously of same strike) is also good idea , As there are 35 day for next expiration, wherein we can expect nifty to move in either ways in these time.
c) If you are a delta trader, Long gamma will be helpful as impact of Theta will be less compared to money earned in managing Nifty.(But take care of STT)

This is not the recommendation to anybody whatsoever to buy or sell this share, but it is my thought process and views on this topic.

I welcome your critical comments and suggestions.


  1. Hello,

    If you become sebi registered hedge fund I will give you so much money to trade...

    get sebi registration for pms, financial advisor so I can trust you, and give you money to trade, if you give good returns you will have millions of rupees coming to you for trading, why selling this for cheap?

    You have good knowledge but you not monetizing it, you can start doing the following things(sorry I may not be the right person to give you advises but could not stop myself, bad habit of mine, but I see your earning potential which you are not utilinzing)
    1. Start your own Education institutes (get sedi, nse association and teach certificates offered by them) by doing so you can lot of money
    2. Write columns in newspaper, magazine (additional income if you not you will be popular and more people reach you for advice)
    3. Appear as expert on Business TV Channels (you will get paid and also get so much popularity again so many more people will your consultancy as I am.
    4. Become sebi certified investment advisor and I will give you money for me to manage and need to put your ecn on your websites for me/other people to trust you sorry for this yes please put your contract notes on your website as real proof and so many people will trust you then you will crores of money as funds for you manage for them
    6. once you are very popular and more experienced, accurate as compared to now, start your own hedge fund, or work as consultant for fii, diis, of fund manager of fiis, dii but after doing plz don't forget me! :)
    5. start advisory service on your website, in short order all that Daryl guppy is offering on his website,here:

    If you start all of the above you will not have time to trade also, but still make lot of money, but do not leave your research and trading as it will be the base of all.. sorry If I am talking too much but could not stop myself....


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