Volatility index: How the Nifty compares with CBOE

How has volatility panned out over the past few weeks and how does this compare with the volatility seen during past corrections? CNBC-TV18 reports.

It's been a very volatile session since the beginning of August. In fact all this started around 27 July and it's always good to put things into perspective to see how the international volatility index, the CBOE VIX as compared to our very own Nifty-implied volatilities.

To put things into perspective, usually, the CBOE VIX ranges from 10-20 per cent; currently it is at 30.67, the highest since March 2003. The Nifty implied volatility range usually ranges from 15-25 per cent and is currently at 34-35 per cent. It had peaked in May 2006, which was a one-off event, when the IVs reached 88 per cent.

During the market correction in May 2004, the CBOE Volatility Index had risen from 14.8 to 20.45 whereas the Nifty IVs shot up to about 75 per cent in puts and 55 per cent in calls on May 17th, when the market tanked.

In May 2006 when the Nifty put IVs had gone upto 88 per cent, the CBOE VIX rose from 11.7 to 23.81 per cent.

And in the February-March 2007 fall, the CBOE Volatility Index rose from 10.31 to 19.63 per cent. And on the Nifty, the call IVs were at 47 per cent and the put IVs were at 34 per cent.

Currently, the Nifty IVs are around 34 per cent; they ranged between 26-30 per cent since 27 July sell off - definitely on the higher side. The CBOE Volatility Index has almost doubled since the beginning of August and is up 15.5 per cent in last two days and has risen from 15.23 to 30.67 per cent.

So the key takeaways are that options-sellers would have made a lot of money in this market, having sold at such high IVs and one interesting point to be noted is, the CBOE VIX tended to top-off at around 20 per cent in the past, but is currently at 30.67 per cent whereas the Nifty IVs although very high, are nowhere close near the historical highs that we have seen in the past corrections.

Two interesting points; but the volatility is very high, which is expected in this market.