Nifty fear gauge VIX shoots past 20. What’s spooking traders on Dalal Street?

Amid investor concerns related to how a low voter turnout can impact the of the Lok Sabha , has lost over 2,000 points in May.

Typically, when India VIX is close to the 10-12 range, it is considered low and a VIX level of 20 or above is considered high. A high VIX indicates a rise in and expectations of increased volatility ahead. If VIX goes down, option premiums become cheaper.

"VIX's behaviour now has a lot of similarities to the period shortly before the 2019 electoral results announcement. Then too, markets had come off peaks in March, and VIX shot up to 28.6. The main difference is that before this, VIX was in a 20-14 range during the previous 6 months, pointing to volatility expectations being reasonably high for an extended period," said Anand James, Chief Strategist, .

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The rate of change of VIX is high enough to assure that we will be seeing a reversal in VIX that could curb wild moves in for the rest of the May series, especially as the electoral outcome would be known only after May expiry. That we have three contracts, by way of May and June monthly contracts as well as June’s 1st weekly contract to play the electoral outcome should also help towards easing out volatility, he said.

Back in the 2014 Lok Sabha elections, VIX had started to spike towards the end of March and went up to levels of 36-38 until the results date and in 2019 also it had gone up to levels of 30.

The current VIX suggests that there is no surprise expected from the results. If you are worried about any negative outcome in the election result, you can hedge against an event risk at a much lower cost (given the low VIX) than the previous 2 elections," said technical analysts Nooresh Merani and Harsh Doshi.

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Derivative expect unnerving moves to continue till the election results are declared.

"The best thing to do is to reduce the aggression on the long side and stick to quality names on the delivery side and probably wait out this month for the storm to settle down. So, our advice to clients is to simply stick to quality, adopt a basket approach close to support levels and once we are done with the event, we are expecting a meaningful recovery to happen in the month of June," said Rahul Sharma of .

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of )