Stock market volatility spikes

The Indian stock markets have become especially volatile. Figure 1 shows the volatility of the Nifty in the last three years. As usual, we use a trailing 30-day quadratic variation as a measure of volatility. Don’t bother about the units of the y-axis, just look at the relative movement.

Source: Yahoo
Source: Yahoo

Notice that the volatility levels we have seen in the last month or so are unprecedented in the last three years. Let us take a closer look:

Source: Yahoo
Source: Yahoo

This gives us a better picture. Volatility was well under control till mid-August, when it started rising (since we use a 30-day trailing QV, this means that markets started getting choppy in mid-July). The volatility is now at an all-time high.

However, the official volatility index (India VIX) disagrees. According to this, volatility has actually dropped from its all-time high. The VIX also looks significantly choppy.

Source: NSE
Source: NSE

 

Perhaps this indicates some trading opportunity in options?

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