Volatility is known as a measure of change. A higher value of
volatility indicates that prices can change at a faster pace (either
going up or down) as compared to the immediate past.
Traders
are often looking for new strategies to trade a major event, say a
Election Results or Union budget or credit policy or even important
results like Infosys. Normally a trader would have bought, what an
option trader calls a Long Straddle strategy. In entering this strategy,
he would buy a long call and a long put option of the same strike price
and same expiry.
In order to earn profits from such a strategy,
markets need to move sharply in either direction such that profit from
one direction would be more than the loss from the other one. However,
the strong following of such a strategy leaves very little on the table
(if at all) as prices of both the call and put option rise before the
event as they all fear the extreme.
Traders will now have an
instrument to earn from such an eventuality. NSE recently launched India
Vix Futures for traders who are willing to bet on volatility.
India VIXis a volatility index based on prices of Nifty options.
Before you start trading the India VIX futures contract, here are few points to consider
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