InvestorQ : How is the volatility index (VIX) a good guide to whether we are in bullish territory or not?
Ria Jain made post

How is the volatility index (VIX) a good guide to whether we are in bullish territory or not?

Answer
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Arti Chavan answered.
1 year ago


The Volatility Index (VIX) is now a traded product on the NSE. Originally, designed by the Chicago Board of Exchange (CBOE), this is a measure of volatility that is implicit in the market. This is a very important measure of the market as it gives a quick view of the quantum of fear in the market. Hence it is also popularly known as the Fear Index. There are no hard and fast rules for the level of VIX but a level of 18-22 is considered to be the normal range for the VIX. This data is available on a real time basis in the NSE website. Once the VIX crosses 22, you need to focuses on how rapidly it rises from these levels. A rapid raise from the 22 level is a signal of an imminent fall in markets. You can position yourself accordingly by buying put options or selling futures. Secondly, VIX is also a signal of markets bottoming out. Normally, markets never bottom out when the VIX is high. When the VIX falls sharply below the 18 mark and begins to consolidate, you can take this as a signal of a market bottoming out. That is when you must start buying the stocks that you want to add in your portfolio.