Trading Strategy using the VIX index

Trading Strategy using the VIX index

I would like to express my appreciation about the explanation of the VIX index in one of your recent issues. What I would like to know is whether as a retail investor I can incorporate the VIX index into my trading strategy?

- Sooraj Viswan

Editor Responds:

We thank you for writing to us and are glad that you enjoyed reading the article on the Indian VIX index. With regards to your query, long-term investors can tweak their sector exposure and hedges based on shifts in VIX. For example, if VIX is moving up sharply, then investors can shift to defensive sectors or increase their hedge ratio. VIX adds value for traders as well. It is possible to trade VIX futures on the NSE. For example, if you expect volatility in the market to go up and VIX going up as a result, you can buy VIX futures. Here, the trader is only taking a view on volatility and not the market direction. These types of trades are very useful in times of key events or key announcements and policies. We hope this answers your question. Keep writing to us with your queries!

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