Vix – Nifty Range Explained

For our long-term readers, you might recognize this approach, which is an adaptation of a technique we discussed a few years ago. Here’s a step-by-step guide that remains applicable regardless of when you’re reading this:

Prerequisites:

• Previous day’s Nifty or BankNifty Spot Price (referred to as “Spot_Price”)
• Previous day’s VIX value (referred to as “VIX_Value”)
• Days until expiration (referred to as “Days_To_Expiry”)

Steps:

1. Record the Previous Day’s Spot Price: This will be your “Spot_Price.”

2. Note the Previous Day’s VIX Value: This will be your “VIX_Value.”

3. Determine Days Until Expiration: This can be any number of days before the expiry. Label this “Days_To_Expiry.”

4. Normalize Days to Expiry: Divide the number of days in a year (365) by "Days_To_Expiry". \text{Normalized_Days} = \frac{365}{\text{Days_To_Expiry}}

5. Calculate Root Value: Take the square root of "Normalized_Days". \text{Root_Value} = \sqrt{\text{Normalized_Days}}

6. Normalize VIX: Divide "VIX_Value" by 100. \text{Normalized_VIX} = \frac{\text{VIX_Value}}{100}

7. Calculate Division Value: Divide "Normalized_VIX" by "Root_Value". \text{Division_Value} = \frac{\text{Normalized_VIX}}{\text{Root_Value}}

8. Determine Range Shift: Multiply "Division_Value" by "Spot_Price". \text{Range_Shift} = \text{Division_Value} \times \text{Spot_Price}

9. Predict the Range: Add and subtract "Range_Shift" from "Spot_Price" to get the potential range for the day. \text{Upper_Bound} = \text{Spot_Price} + \text{Range_Shift} \text{Lower_Bound} = \text{Spot_Price} - \text{Range_Shift}

Result: Your predicted range for the day is between “Upper_Bound” and “Lower_Bound.” Remember, if the VIX rises during the day, the range could also expand. Always stay updated with live market data!