Rs 325-crore trading in VIX futures on Day 1

Futures contracts on the volatility index expiring on 4th March recorded the maximum turnover, at Rs.294 crore

The National Stock Exchange’s volatility-based derivative contracts recorded a volume of Rs 325 crore on Wednesday, its maiden trading session.

Activity might pick up around the time of key events such as the elections, even as the large contract size could deter retail investors, say experts.

The current uncertain environment because of domestic and global cues has created a conducive environment for such a product, according to Rashesh Shah, chairman and chief executive officer at Edelweiss Financial Services. “There is a lot of uncertainty and volatility because of elections and with the global volatility. This is an important asset class in that context,” he said at the launch of the product at the NSE. In 2009, NSE began disseminating an index which measured traders’ expectations of how wildly the market could swing in the near term. The so-called India VIX, or volatility index, is calculated on the basis of traders’ bets on the benchmark Nifty index.

NSE had applied in 2010 to begin trading in derivatives based on this index, allowing investors to take a bet on market volatility. The Securities and Exchange Board of India gave its approval for the product earlier in the year. There are three weekly contracts on the VIX, which expire on Tuesdays.

 

The contract expiring on March 4 had the highest turnover, at Rs 294 crore. The next two weeks’ contracts recorded volumes of Rs 23.1 crore and Rs 7.7 crore, respectively, according to exchange data. India VIX closed at 13.95 on the NSE. There were 227 brokers who participated on the segment, it said.  

Ketan Karkhanis, vice-president at ICICI Securities, said activity might pick up during the time of important occasions. “The contract size is large…We might see elevated levels of participation around events like the elections,” he said.

Sahaj Agrawal, deputy vice-president (derivative research), Kotak Securities, suggested further downside might be limited for the index. “VIX is trading at the lower end of its range, so it will be very risky to go short at this point. Long positions are more likely...The contract size at Rs 10 lakhs is large for retail investors, who are going to watchful. Their participation will be subdued by institutions, which are likely to take positions to hedge the risk in their portfolios,” he said.