India VIX jumps 30% as SENSEX, NIFTY50 crash; key triggers behind spike in market volatility explained

The volatility gauge, India VIX, surged as much as 30% to an intraday high mark of the 15.15 level on Wednesday, July 8, following a crash in the equity benchmark indices.

At 2:25 PM, the index was at the 14.77 level, soaring 26.78%. Over a year’s time the NSE's Volatility Index, or VIX, has jumped 21%, while for six months’ time it has zoomed 39%. It had touched a low of the 8.18 level in 2023.

Meanwhile, at the time of writing the piece, the NSE NIFTY50 index was down 2.04% to the 23,901.80 level, while the BSE SENSEX crashed 1,624.26 points, or 2.08%, at 76,556.46.

The volatility index is a measure of the market’s expectation of volatility over the near term. Volatility is often described as the “rate and magnitude of changes in prices" and, in finance, often referred to as risk.

The index also indicates the expected short-term fluctuations in an underlying index. It is expressed as annualised volatility (in percentage terms, e.g., 20%) and is derived from the order book of the index’s options.

India VIX is a volatility index derived from NIFTY index option prices. It is calculated using the best bid-ask quotes of NIFTY options contracts to indicate the expected market volatility over the next 30 calendar days. The index follows the CBOE methodology, with modifications to suit the NIFTY options order book, including the use of cubic spline interpolation.

The fall in VIX, or fear gauge, indicates that the investors believe that the worst of the declines may not be over.

Here are the factors contributing to the market fall on Wednesday

The Indian stocks market witnessed a sharp fall after US President Donald Trump declared that a ceasefire with Iran was "over as far as I'm concerned," after Tehran launched missiles and drones at US military facilities in Bahrain and Kuwait in retaliation for American strikes and renewed sanctions.

Speaking at the start of a NATO summit in Istanbul, Trump described Iran as "evil, sick people" and "dirty players," accusing Tehran of violating the ceasefire by targeting commercial vessels in the Strait of Hormuz.

"The ceasefire is over as far as I'm concerned," Trump said. He added that he no longer wanted to negotiate with "this scum," saying the United States was wasting time pursuing diplomacy with Iran.

At 2:30 PM (IST), Brent crude oil prices were trading 6.11% higher at $78.69 per bbl on Wednesday’s trading session, compared to $74.16 per bbl at the previous market close, according to Investing.com data.

Furthermore, the crude oil prices were impacted after the United States carried out targeted retaliation air strikes on 80 locations in Iran in response to the West Asian country allegedly violating the ceasefire agreement.