Two kinds of volatility
| Historical volatility | Implied volatility | |
|---|---|---|
| Source | Past price changes | Current option prices |
| Looks at | What happened | What the market expects |
| Used for | Sizing positions and stops | Judging whether options are cheap or expensive |
| Tool | Volatility calculator | Implied volatility calculator |
India VIX is NSE's measure of the volatility implied by Nifty options over the next 30 days.
Turning volatility into points
Formula
Expected one-day move ≈ price × annual volatility ÷ √252, for one standard deviation. Over n trading days, use √n in place of 1.Example
With Nifty at 25,000 and volatility of 14%, a one-standard-deviation move in one day is about 25,000 × 0.14 ÷ 15.87 ≈ 220 points. Over a 5-day week it is about 25,000 × 0.14 × √5 ÷ 15.87 ≈ 493 points. About two days in three, Nifty would stay within these ranges, if returns followed a normal distribution. Real markets have more large moves than that.Why volatility matters
- Option prices: higher implied volatility means higher premiums. Option buyers pay more; sellers collect more but carry more risk.
- Stops: a stop inside the normal daily move gets hit by noise. Volatility-based stops, such as those using ATR, adjust to conditions. See the ATR strategy.
- Position size: the same number of lots carries more risk when volatility is high.
- Events: implied volatility often rises before events such as the budget or RBI policy and falls after them. See IV crush.
Related terms
Learn more
Frequently asked questions
Is high volatility good or bad?
Neither. It means larger moves in both directions, which brings opportunity and risk.
What does an India VIX of 14 mean?
That Nifty options imply annualised volatility of about 14% over the next 30 days.
Why is volatility annualised?
So that volatility over different periods can be compared on one scale.
Trading involves substantial risk. Examples on this page are hypothetical and are not investment advice.