Comment on Trading India VIX - Simplified

Nithin Kamath commented on 06 Mar 2014, 07:37 PM

Manish,

1. VIX is a direct play, but the limitation would be that the longest contracts are just 3 weeks old, so if you have to play for the election results from May 16, you can start taking positions only from last week of April. Since it is a derivative, there won’t be any circuit filter on the contract, but yeah there is a 20% circuit on the entire market itself. If you look at the VIX historical chart, the range has been 13 to 30, but during the 2009 election it had spiked upto 60, so if the play is volatility even if VIX is available to be bought at around 30 3 weeks before the event, though it would be on the high end of the range, it might still be a good bet.

2. Definitely better to be in options than futures. If you check out the May option prices, the premiums have already factored in extremely high volatility. Long strangle might be a good bet, if you are expecting extreme volatility, buy OTM calls and OTM puts.

3. Another strategy could be that since so many people are trying to play volatility, and since premiums are so high, you could also simultaneously run a bear call and bear put spread. Sell ITM option, hedge it by buying an OTM option. You can do it on calls and puts at the same time.

Nifty options are much better instruments to trade than Bank nifty, because of liquidity.

Best of luck

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