Research · counted from the record
How often does India VIX's range hold?
India VIX implies a range Nifty should stay inside about 68% of the time. Counted on every trading day since 2008, the one-month range has held 74% of the time: options have priced in more movement than arrived.
What VIX promises
India VIX is the yearly rate of movement that Nifty option prices imply. Scaled down to a day, a week or a month, it gives a range of one standard deviation either side of today's close.
If option prices were a fair estimate of what was coming, Nifty would finish inside that range about 68% of the time. That is a claim, and it can be checked.
How it was counted
For every trading day since 2008, take that day's India VIX close and scale it to one, five and twenty-one sessions. Then see whether Nifty's close that many sessions later fell inside the range.
Only the VIX known on the day is used. Each day is one case, though neighbouring days share most of their outcome, so the count is of days, not of independent trials.
What happened
| Range over the next | Implied move today | Held | Days counted |
|---|---|---|---|
| Day | ±0.91% (about 204 points) | 78.0% | 4,551 |
| Week | ±2.03% (about 456 points) | 75.0% | 4,547 |
| Month | ±4.15% (about 935 points) | 73.6% | 4,531 |
"Implied move today" is what the latest India VIX close implies. The share that held is over the whole record.
What it means
Option prices have, on average, overstated the movement that followed. Nifty stayed inside the implied range more often than a fair estimate would allow, at every horizon.
That gap is the premium option sellers collect for taking risk, and it is the reason selling options is a business. It is not free money: the times the range fails, it tends to fail by a lot, and those are the days that matter.
For anyone reading VIX as a forecast, the practical point is simple. The range it gives is, if anything, a little too wide. A VIX-implied band is a fair first guess at where Nifty will be, and the tails beyond it are where the risk lives.
Limits
- The average hides the timing. Ranges hold for long calm stretches and then fail several times together.
- The count says how often the range held, not by how much it was broken when it failed.
- It covers Nifty 50 only.
Questions people ask
How accurate is India VIX?
Since 2008, Nifty stayed inside the one-month range India VIX implied 74% of the time, against the 68% a one-standard-deviation range should hold.
Does India VIX overestimate volatility?
On average, yes: implied ranges held more often than 68% at one day, one week and one month.
How do I calculate the expected range from India VIX?
Multiply the index level by VIX ÷ 100 and by the square root of (days ÷ 252). For one day that is VIX ÷ 15.9, as a percentage of the index.
Why do option sellers make money on average?
Because implied volatility has usually been higher than the movement that followed. The difference is their payment for bearing the risk of the rare large move.
Keep reading
Research and information, not investment advice. Every figure describes the past: it is what happened, counted, and not a forecast of what will.