Comment on Trading India VIX - Simplified

AZ commented on 27 Apr 2014, 08:51 AM

Hi Akhil/Nitin, this reply is in continuation of what I posted on 13 April 2014.

1.) As I said, shorting 29th April VIX future would have made sense as in just a week span of time it has fallen from 38.75 to 31.65, i.e. ~7 vol points (18%) in just 1 week. I said so as my model predicted IndiaVIX spot level of 35 by 21st April and thereby the fall in the IndiaVIX levels. So, my forecast of IndiaVIX spot and its future levels turned out to be the absolutely accurate.

2.) Now, I want to know your view on the 13th May 2014 expiry VIX future, which is trading at 34.31. Given the spot level of IndiaVIX at 30.68, the 13th May future is trading at just 12% premium. Since market participants hasn’t yet positioned themselves for the election through Nifty options, I believe vol should increase going into the elections. At the same time, this is one of the most crucial events in the last 5 yrs, yet IndiaVIX is no where close to its highs of 50 level. So, from risk-reward perspective, it makes sense to long 13th May VIX future.

Let me know of your thoughts.

Thanks

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