EQUITY DERIVATIVES

Contact
NSE - Corporate Office

National Stock Exchange of India Limited

Exchange Plaza, C-1, Block G, Bandra Kurla Complex, Bandra (E), Mumbai – 400 051.
Deal confidently with volatility
Tel No: (022) 26598100 - 8114. Fax No: (022) 26598120.

Branch Offices

MUMBAI AHMEDABAD
Western Regional Office: National Stock Exchange of India Ltd.,
National Stock Exchange of India Ltd., Office No. 304/305,
6th floor, Kohinoor City, GCP Business Centre,
Tower – 1, Commercial – II, Opposite Memnagar Fire Station,
Kirol Road, Off. L. B. S. Marg, Kurla (W), Navrangpura,
Mumbai – 400 070. Ahmedabad - 380009.
Tel. No: (022) 25045300. Fax No: (022) 25045299. Tel No : (079) 49008610 / 49008611.
Fax No : (079) 49008660.
CHENNAI
National Stock Exchange of India Ltd., DELHI
8th Floor, Arihant Nitco Park, National Stock Exchange of India Ltd.,
No 90, Dr Radhakrishnan Salai, 4th Floor, Jeevan Vihar Building,
Mylapore, Chennai 600 004. Parliament Street,
Tel No : (044) 28479900 / 28479902-05. New Delhi-110 001.
Fax No : (044) 28479926/27. Tel No : (011) 23459133 / 49393033.
Fax No : (011) 23459291.
HYDERABAD
National Stock Exchange of India Ltd., KOLKATA
8-2-594/A/1, Third Floor, Urmila Heights, National Stock Exchange of India Ltd.,
Opp Rainbow Hospital, 1st Floor, Park View Apartments,
Road No 10, Banjara Hills, 99, Rash Behari Avenue,
Hyderabad – 500034. Kolkata - 700 029.
Tel No : (040) 23357082 / 7083. Tel No : (033) 40400400.
Fax No : (040) 23357084. Fax No : (033) 40400440.

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defect, even if NSEIL or representatives thereof, are advised of the possibility of such damages, losses or expenses. FUTURES ON INDIA VIX
 NVIX

Volatility as an Asset Class In the year 2014 the India VIX values were in the range of 11.5 to 37.5.
Since India VIX signifies volatility, the values will be computed upto 4
decimal places as market participants may like to analyse impact on
The global financial crisis has re-emphasised the impact of volatility on
prices due to small changes in volatility.
portfolios. Post the financial crisis investors started exploring various
options to hedge their portfolios against changing volatilities. Focus to
More information on India VIX can be found at
index exposure, diversifying across asset-classes and volatility as one of
http://nseindia.com/live_market/dynaContent/live_watch/vix_home_p
the asset classes have emerged. Exchange traded products on volatility
age.htm
have picked up.

Volatility can be measured through volatility indices. The first volatility

index was VIX introduced at CBOE. The volatility index is also introduced
in several developed and emerging markets. These volatility indices are
India VIX and Nifty
measure of market expectation of volatility over a short-term period.
Nifty India VIX
10000 60
In India, National Stock Exchange of India Ltd. has constructed a 9000
volatility index called India VIX*. 8000
50

India VIX Index Value

Nifty Index Value
7000
40
6000
5000 30
4000

India VIX 3000

2000
20

10
1000
India VIX indicates the investor’s perception of the market’s volatility in 0 0

the near term. From the best bid-ask prices of NIFTY Options contracts, a

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Mar-13

Jun-13

Sep-13

Dec-13

Mar-14

Jun-14

Sep-14

Dec-14
volatility figure (annualised %) is calculated which indicates the
expected market volatility over the next 30 calendar days. India VIX uses
the computation methodology of CBOE, with suitable amendments to
adapt to the NIFTY options order book.

A high India VIX value would suggest that the market expects significant
changes in the Nifty, while a low India VIX value would suggest that the
market expects minimal change. It has also been observed that
historically, a negative correlation exists between the two. Volatility
indices like India VIX are often perceived to display mean reverting
characteristics by oscillating around a long-term variance.
Derivatives on Volatility Indices
Globally exchanges are offering derivative products based on the
volatility index. These products have become quite popular among the
participants as it expands the opportunities available to participants and
provide efficient means to hedge against volatility. Some studies have
also shown that derivatives on volatility indices can be useful for
portfolio diversification and hedging.

“VIX” is a trademark of Chicago Board Options Exchange, Incorporated (“CBOE”) and Standard & Poor’s has
granted a license to NSE, with permission from CBOE, to use such mark in the name of the India VIX and
for purposes relating to the India VIX
 NVIX
Volatility indices enable market participants to trade expected changes
in market volatility in a single transaction. Investors expecting rising NVIX Futures Contract Specification
volatility levels will go long, whereas investors expecting decline in
volatility will go short. Underlying India VIX Index
Symbol INDIAVIX
Instrument Type FUTIVX
Lot Size 750

Futures on India VIX

Quotation Price India VIX Index Value x 100
Contract Value Minimum ` 10 lakhs at the time of introduction
Tick Size ` 0.25
Trading Hours 9:15 AM to 03:30 PM

1 Trading volatility made simple Expiry Day Tuesday

Contract Cycle 3 weekly contracts
Daily Settlement Price Last half hour's weighted average price of futures

2
Final Settlement Price Closing price of the underlying index
Take view on volatility Final Settlement Cash Settlement
Procedure
Final Settlement Day All open positions on expiry date shall be settled on the next working
day of the expiry date (T+1)

3 New asset to diversify portfolio

Understanding Contract Price of NVIX Futures and
impact of change in 1 tick
For ease of trading the India VIX futures price shall be quoted as expected India VIX index value *100. If

Trading Volatility with NVIX Futures

India VIX Futures enables participants to more easily hedge, trade and
arbitrage the expected volatility. Benefits of India VIX futures are as
trader wants to buy 1 contract of India VIX futures at 13.4500, then the price to be quoted shall be
`1345.00. The contract value shall be `1008750’. {No. of contracts (1) * Lot size (750) * Quoted price
(1345.00)}
The underlying India VIX has a tick value of 0.0025 and the future on India VIX has tick value of 0.25.

under: Using the above example change in 1 tick will have following impact.

India VIX Value India VIX Futures Price Contract Value

m India VIX futures can be used to hedge equity portfolios
Current Price 1338.00 1345.00 `10,08,750.00
m Investors can diversify the portfolio by adding India VIX futures
1 tick change 1338.25 1345.25 `10,08,937.50
m Option traders can hedge volatility risk Impact 0.0025 0.25 `187.50
m Investors will be able to take directional views on volatility
m Calendar spread trading can be explored across weekly contracts. (Note: Lot size is as on January 07, 2015. Exchange periodically reviews the lot size depending upon
the contract value.)

Frequently Asked Questions
1. Is India VIX similar to that of market indices like NIFTY?
Volatility Index is different from a market index like NIFTY. NIFTY
measures the direction of the market and is computed using the
price movement of the underlying stocks whereas India VIX
measures the expected volatility and is computed using the order
book of the underlying NIFTY options. While Nifty is a number, India
VIX is denoted as an annualized percentage.
2. Can all types of participants trade in India VIX futures?
Equity investors, mutual funds may use India VIX futures to hedge or
diversify the equity portfolio. Options traders may use India VIX
futures for hedging the vega risk or take exposure on volatility.
3. Why do India VIX futures have 3 weekly contracts?
Indian markets are observed to predict expected volatilities for up to
two months (60 days). India VIX futures represent expected volatility
over the next 30 calendar days from the expiration of the contract.
Three weekly India VIX futures contracts will predict the volatility till
51 (21 + 30) days from the current date.
4. Why does India VIX futures contract expire on Tuesday?
On the last Tuesday that is thirty days prior to the last Thursday of
the next month, the Nifty option expiring in exactly 30 days,
accounts for all of the weight in the India VIX calculations. India VIX
value on this day will project expected volatility over the time period
that mirrors the time period of derivative contracts on Nifty.
5. Is there any additional infrastructure cost for the trading member to
trade in India VIX futures?
The contracts on India VIX futures shall be available for trading in the
F&O segment of NSE. Therefore all members of NSE F&O segment
shall be able to transact in India VIX futures. The margins shall be
blocked from the deposits placed in the F&O segment.
Useful references:
Historic values for India VIX -
http://www.nseindia.com/products/content/
equities/indices/historical_vix.htm.
The historic values of India VIX are available from March 02, 2009.
Computation method of India VIX -
http://www.nseindia.com/content/vix/India_VIX_ comp_meth.pdf
NVIX
About NSE
NSE is one of the leading exchanges in the world on several key parameters. NSE is ranked number
one exchange in terms of number of trades in equity markets. It also has the highest number of
contracts traded in stock index options and exchange traded currency derivatives. NSE uses
state-of-art information technology to provide an efficient and transparent market mechanism. It
has heralded several innovations like demutualisation; screen based trading, reduced settlement
cycles, dematerialization, electronic-transfer of securities, robust risk management systems and
introduction of clearing corporation to take on counterparty risks.
Milestones
CII-Exim Bank Award For Business Excellence Prize: 2014 Nov - 14
NSE Launches NVIX Futures Feb - 14
Futures on India VIX index
Jan - 14 Launch of NBF II Debt Segment
NSE launches the first dedicated May - 13
Debt Platform on the Exchange Jan - 13 NSCCL Rated CCR AAA for
fifth consecutive year
Sep - 12 NSE launches SME operations
NSE launches mobile trading for all investors Nov - 10
Aug - 11 Launch of Global Indices
Oct - 10 Introduction of Currency Options on USD INR
Nov - 09 Launch of Mutual Fund Service System
Launch of Interest Rate Futures Aug - 09
Aug - 08 Launch of Currency Derivatives
Launch of Apr - 08
Securities Lending & Borrowing Scheme Apr - 08 Launch of India VIX
Jan - 02 Launch of Exchange Traded Funds (ETFs)
Commencement of trading in Nov - 01
Futures on Individual Securities Jul - 01 Commencement of trading in Options on Individual Securities
Jun - 01 Commencement of trading in Index Options
Jun - 00 Commencement of Derivatives Trading (Index Futures)
Feb - 00 Commencement of Internet Trading
Jul - 98 Launch of NSE's Certification Program in Financial Market
Dec - 96 Commencement of trading settlement in dematerialised securities
Apr - 96 Launch of S&P CNX Nifty
Apr - 95 Establishment of NSCCL, the first Clearing Corporation
Nov - 94 Capital Market (Equities) segment goes live
Jun - 94 Wholesale Debt Market segment goes live
Apr - 93 Recognition as a stock exchange