Recent Posts

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Derivatives / Difference between IV and VIX

« Last post by resh on December 17, 2025, 01:29:03 PM »

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

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Derivatives / Who is Buying Far OTM Options ?

« Last post by resh on December 17, 2025, 01:16:56 PM »

Let's say Nifty spot is at 26,000. 5% away it is 24,700 or say 24,500 - Who are Buying these strikes and Why is the big question ?

If some Institutional Investor is sensing Risk of an Event, they usually Buy in Large Quantities as they can't liquidate their portfolio and this is the only means to hedge. But this is not a regular affair. So who else Buys the Deep OTM Options ?

The margin benefits for option writers are so structured that if you Sell 25000 PE and Buy 24500 PE then they will end up locking lower margin. Hence you can imagine the rest of the chain based on their risk assessment, they will end up buying some strike and sell some strike, typically known as "Spreads"

Also the same applies for Ratio's Buy an Inner Hedge and Sell Outer in the ratio of 1:2 or 1:3 based on risk.

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Derivatives / Re: Why PUT Options are Expensive than Call Options ?

« Last post by resh on December 17, 2025, 01:07:11 PM »

Many seasoned Option Writers who maintain 100 Cr Option Book are of the opinion that it is due to Large Institutions continuously hedging their downside risk that the PE option chain is more expensive and uniform as well.

Suppose Nifty is at 26,000 and somebody wants to hedge their risk, he'd have bought 26,000 and sold 25,000 based on the Delta of the Portfolio.

Remember that FIIs hold USD 900 Billion in Indian Equities but actively hedge just 10% of it around USD 90 Billion

4

CIBIL Credit Report Score / How Credit Score is Calculated ?

« Last post by resh on August 14, 2025, 10:41:52 PM »

Instead of the earlier two-year period, your CIBIL Score now factors in a three-year period when evaluating your credit behavior. Assessment of credit data over a longer period helps provide a more comprehensive overview of your loan eligibility.

The enhanced score also includes new credit attributes that gives lenders a more complete view of your credit behavior to help them make objective lending decisions, even if you have a short credit history.

The new enhanced score will substitute the current score in all products with a CIBIL Score offering.

Your CIBIL Score plays an important role in the loan approval process. Monitor your CIBIL Score regularly to be always loan-ready so that you have access to credit when you need it the most.

5

Derivatives / Nifty Upward Circuit - Sitharaman Candle

« Last post by resh on August 06, 2025, 11:16:14 AM »

On the 20th of September 2019, Friday, then Finance Minister Nirmala Sitharaman announced the change in Corporate Tax rate out of nowhere. No Hints, No Clues, just come and make an announcement.

The Nifty closed 5.32% higher on that day. VIX didn't rise much and was stable between 15 and 15.5
The next day Nifty went up higher again by 2.8%

If you were a leveraged option seller without any hedges, or stop loss, you're wiped out for sure on that day.

6

Derivatives / Why PUT Options are Expensive than Call Options ?

« Last post by resh on July 10, 2025, 10:24:23 PM »

Why are PUT Options more Expensive than Call Options - both equidistant from the ATM ?
Investors tend to buy more puts for protection against downside moves, which pushes their price and implied volatility higher. This phenomenon is known as the "volatility skew" or "smirk" in the options market, and it's a deviation from what the basic Black-Scholes model might predict (which would suggest equal implied volatilities for equidistant calls and puts).

But the crux of it lies in Put-Call Parity Relationship
P=C−S+K(e)^−rT

C: Call price
P: Put price
S: Current stock price
K: Strike price
r: Risk-free interest rate
T: Time to maturity in years (1 week = 7/365)

When I calculated using the above formula, didn't get correct values. Nevamind.
Theoretical models might suggest otherwise under ideal conditions, real-world options markets are influenced by supply and demand dynamics, market perceptions of risk (especially downside risk), and the practicalities of hedging.

Some argue that investor psychology plays a role. People are generally more sensitive to losses than gains (loss aversion), leading them to overpay for downside protection

7

Derivatives / What is Low VIX - Option Strategies ?

« Last post by resh on July 09, 2025, 01:02:14 PM »

A "low VIX" environment for option sellers is typically considered to be when the CBOE Volatility Index (VIX) is: Below 15
It's often associated with bullish or stable market conditions.

< 12   Very Low Volatility   Premiums are very low; poor reward for risk. Caution.
12–15   Low Volatility   Still low; limited premium, but slightly better than <12.

Now tell me what Option strategies are suited for the same ?

8

Derivatives / Use of AVWAP - Positional Traders

« Last post by resh on July 01, 2025, 09:53:26 PM »

We all know that AVWAP is one of the best measures and is used by financial Institutions as well to take short term view.

But the question is What are the Major Anchor Points ?

1. Major Highs and Lows
All-time high (ATH) or recent significant high
Major market low (e.g., COVID crash low in March 2020)
2. Yearly Anchors
Start of Calendar / Financial Year
3. Breakouts or Breakdown Points
Large technical breakouts from consolidations or resistance
Breakdowns from key supports or ranges

How is AVWAP used by various market participants ?
3 months (short-term trend)
6 months (medium-term institutional view)
1 year or YTD (long-term trend, often aligns with mutual fund views)

9

Derivatives / VIX - 9/11 BlackSwan

« Last post by resh on June 24, 2025, 10:46:26 PM »

VIX had closed around 25 on Sep 4th 2001.

On the 17th Sept 2001, it shot up to 44 and closed at 42. The it eventually shot up to 48 on Sept 21 2001 and then stayed above 30 till Nov-12-2001 i.e for Full 2 Months.

Source: https://finance.yahoo.com/quote/%5EVIX/history/?period1=999475200&period2=1024876800

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Derivatives / Re: 9/11 Blackswan impact on Options Traders

« Last post by resh on June 24, 2025, 10:37:40 PM »

What Google Gemini had to say about September 14th 2001 Expiry is this,

While specific official announcements from the CBOE (the primary exchange for SPX options) regarding the exact alternative settlement procedures for the September 14, 2001, expiry are difficult to pinpoint directly from readily available summaries, we can infer the likely process based on how such unprecedented situations are usually handled:

Suspension of Normal Settlement: The standard settlement at the market open on September 14th was impossible due to the closure.

Delayed Settlement based on Reopening Price: It is highly probable that the settlement of these options was delayed and based on the opening prices of the S&P 500 index when the markets eventually reopened on Monday, September 17, 2001. This would be the most logical and fair approach to determine the intrinsic value of the options given the extraordinary circumstances.

Adjustments and Communications: Exchanges would have issued official notices and procedures to inform market participants about the revised settlement process. This would involve:
        Confirming the new "settlement date" (likely September 17th).
        Specifying the exact S&P 500 index value to be used for settlement (the opening value on the new settlement day).
        Providing instructions for clearing and settlement firms to handle the cash adjustments for option holders and writers.