Vix – Nifty Range Explained

With the Vix at 33+ we are living in days of high volatility.

 

This would mean opportunity for some and headaches for others, but it translate into a bigger range than otherwise in the markets.

 

Here is a quick calculation to see how you can use the Vix to arrive at what the range of the Nifty or BankNifty would be for the next day.

 

Regular visitors would know this as a rehash of an earlier post done a few years back.

 

Let’s look at yesterday’s Nifty close and Vix as examples.

 

We closed at 5285 on the Nifty Spot and 32.38 in the Vix.

 

Step 1 : Look at the spot price from the day before ( 5285 )

Step 2 : Look at the Vix from the day before ( 32.38 )

Step 3 : Look at the days to expiry ( 1).You can do this any number of days before expiry.

Step 4 : Divide this figure from step 3 by the nos of days of the year ( 365/1 )
You get 365.

Step 5 : Take the square root of the figure in step 4 ( 19.10)

Step 6 : Divide Vix by 100 ( 0.3238)

Step 7 : Now divide step 6 by step 5.You get 0.016948

Step 8 : Multiply step 7 by the spot price of step 1 ( 0.0094 x 5285 = 89.57 )

Step 9 : Add and subtract step 8 from step 1 ( 5374-5195)

 

The range is 5374 to 5195 for today as long as Vix remains below 32.38. If it increases during the day then range may also increase.