Decoding Volatility: What VIX and IV are telling us in 2025
India's benchmark indices, Nifty and Sensex, began 2025 on a muted note but later rebounded sharply, with Nifty marking a fresh all-time high above 25,200 in June. This year, Indian stock markets have been facing sharp peaks and troughs, with average At-The-Money (ATM) Implied Volatility (IV) for Nifty 50 options ranging between 13.5% and 15.5%. Global economic uncertainties, US elections, and Tariff changes have shaped investor sentiments and boosted sector rotation.
VIX: The market's fear gauge remains muted
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The India VIX is a number that analyses Nifty options and shows how much volatility or movement traders are expecting in the market over the next 30 days. It's often called the "fear index" because it usually goes up when there's uncertainty or fear in the market. So it has an inverse relation with markets.
But in 2025, the VIX has stayed quite calm and steady, mostly moving between 12 and 16 — suggesting investors are not nervous, and there's no sign of panic in the market. This aligned with the higher levels in major indices, sectoral outperformance in IT, Auto, and Energy, and FMCG and Metals.
The muted VIX suggests confidence in the market's overall sentiment, despite minor dips due to economic & geopolitical stress, quarterly earnings volatility and monsoon concerns—all of which tend to influence the sentiments of retail investors.
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Implied volatility: Hidden signals in the calm market
Comparing India VIX to ATM IVs, VIX is a broader concept while ATM IVs are specific to index options, like Nifty 50, Sensex and Bank Nifty Options. In 2025, ATM (At The Money) IVs for Nifty options have averaged between 13.5% and 15.5%, reflecting a low-volatility range. However, sharp IV spikes have been observed ahead of major events such as RBI policy meetings, Union Budget announcements, and during quarter result announcements.
Derivative indicators show balanced but watchful sentiment
A closer look at the derivatives front: Put-Call Ratio (PCR) has traded near neutral to slightly bullish territory (0.85-1.10), signalling balanced sentiment with an upward bias, where put options have been trading more than or equal to calls, with rising prices suggesting upward bias. Open Interest (OI) concentration on higher strikes (e.g., 25,500–26,000 on Nifty) monthly expiry suggests participants are pricing in range-bound to moderately bullish scenarios, while on the downside, 24,500 and 24,000 strikes have the highest Put OI build up for month of June. Meanwhile, falling IV with rising OI on call sides has often preceded short-covering rallies.
Traders and investors can look for smart opportunities using volatility
For investors, the low volatility implies stable accumulation opportunities, especially in sectors showing relative strength such as Healthcare (Pharma & Hospital), Cements, Real Estate, Agri inputs, and Power proxies. However, it also warrants caution. So when investing, one should also use a protective put and covered call strategy to safeguard from uncertainties.
For traders, 2025 has so far been the year of non-directional strategies — think Iron Condors, Calendar Spreads, and Straddles during events. With VIX low, the cost of buying options is low, making event-based long IV trades more attractive when executed timely.
Final Thoughts: Stay prepared, not passive
While the markets appear calm, it's important not to get lulled into complacency. The Indian equity market in 2025 has been shaped by a mix of earnings surprises, data around global uncertainties, and geopolitical developments. VIX and IV are more than just technical metrics — they reflect market psychology and can offer early warnings of turning tides.
As we head into the second half of the year, keeping a close eye on volatility signals will help you navigate uncertainty with greater confidence— and avoid getting caught off-guard by sudden moves.
(The author
Dr Ravi Singh is Senior Vice President - Retail Research, Religare Broking. Views are own)
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