Poll effect: Volatility index at 7-month high

VIX today rose 6.71% to 28.72, has shot up nearly 40% this month to a seven-month high

The VIX index, Dalal Street's fear gauge, has shot up nearly 40 per cent this month to a seven-month high as traders expect wild swings in the market after election results are announced.

National Stock Exchange’s (NSE) India VIX index rose 6.71 per cent to 28.72 on Thursday, the most in seven months. The index was at around 20-levels at the start of this month.

The market expects the index to rise further as election result day - May 16 - nears.

“The VIX index is likely to move towards 40 in the run-up to the election results. During the previous elections, it had breached the 50-mark. The rise in the VIX index is a function of uncertainty. As and when there are speculations surrounding the election outcome, one way or the other, the index will move,” said Yogesh Radke. head of quantitative research at Edelweiss Capital. Siddharth Bhamre, head (equity derivatives) at Angel Broking, believes the index will rise further as the election outcome month nears. “The index is computed based on strike prices of ongoing series and next series. The weightage of April series strike prices is going down, while that of May is increasing. This is resulting into surge in the index,” he said.

According to experts, the election result is a big event from the market point of view and it will led to heightened volatility. During the 2009 Lok Sabha elections, the index had breached the 50-mark.

In February this year, NSE had launched trading based on the VIX index. The price of the VIX future contracts has risen sharply in recent days. However, there participation and open interest remain very low, market players said.