IV (Implied Volatility) and VIX both relate to expected market volatility, but they’re not the same thing.
1. Implied Volatility (IV)
What it is:
IV is the market's expectation of how much a specific asset (stock, ETF, index) will move in the future.
Key points:
Derived from option prices
Applies to one underlying (e.g NIFTY)
Usually quoted as an annualized percentage
Changes constantly with supply and demand for options
If RELIANCE has an IV of 20%, the market expects NIFTY price to move about ±20% over the next year (not direction, just magnitude). It is that of ATM.
2. VIX (Volatility Index)
What it is:
VIX is an index that measures the market’s expectation of 30-day volatility for the Nifty 50.
Key points:
Calculated from NIFTY index options
Represents overall market volatility, not a single stock
Often called the “fear index”
Expressed as an annualized percentage
Example:
A VIX of 15 implies expected annualized volatility of 15% for the Nifty 50 over the next 30 days. It is calculated using current and next month option prices (Monthly Expiries)
When VIX rises, IVs of many stocks usually rise too
Individual stocks can have high IV even when VIX is low (e.g., earnings)
VIX is essentially a weighted average of Nifty implied volatilities
