Sunday, March 30, 2014

Nikkei Stock Average Volatility Index

As written in previous post, I was looking for VIX equivalent for Nikkei 225 (N225) and KOSPI 200.  I am glad that I found VIX equivalent for N225 : Nikkei Stock Average Volatility Index (NKVI) at here.

The below overview is quoted from the website.  I have not studied in detail its guidebook or fact sheet.  At the mean time, I will interpret it the same as VIX.

The Nikkei Stock Average Volatility Index indicates the expected degree of fluctuation of the Nikkei stock Average in the future. The greater the index values are, the larger fluctuation investors expect in the market.

  • (Underlying index) The Nikkei Stock Average Volatility Index signals the expected volatility of the Nikkei 225 in one month period.
  • (Calculation method) The Nikkei Stock Average Volatility Index are calculated by using prices of Nikkei 225 futures and Nikkei 225 options on the Osaka Securities Exchange. In the calculation, taking near-term future price as the basis of ATM, the volatility of near-term option and next-term option are calculated with OTM option prices of each delivery month. Then, the index value is calculated by linear interpolation or linear extrapolation between the volatilities of each delivery month to make the time to expiration as 30 days.
  • (Base date) The commencement date of the calculation was November 19, 2010, which had been retroactively calculated in the past on the end-of-day basis, to Jun 11th, 1989. The index is currently calculated every 15 seconds during the day session of the Nikkei 225 options on the OSE.
Looking the 1 year chart, it seems that NKVI usual range is between 20-30, with spike to 40+ in the month of May-June.
NKVI 1 year

The 3 months chart show that it stay between 20-30 most of the time, except with a spike to 30+ in Feb.
NKVI 3 months

The 1 week shows that NKVI close at 23.71 lowest in the week.  So, not a good time to sell options?  
NKVI 1 week

I will take some time to study NKVI with N225 to have a better understanding on the correlation before I update my Money Management rules in the Trading Plan.

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