There are various options contracts for equity derivatives in India, but each index’s volatility differs. There are indices that exhibit extreme event-driven swings, and then there are others that offer deep liquidity with lower volatility, catering to various needs of Indian traders.
Knowing which indices are likely to have the most extreme premium swings is as valuable to an options trader as knowing the right strike or expiry. In this blog, we will be looking at the Indian indices that have witnessed the wildest swings in the Indian options market.
Bank Nifty
The Bank Nifty index, which comprises 12 major banking stocks listed on the NSE, is considered one of the most volatile indices among India’s major indices. The index is skewed towards large private-sector banks and is sensitive to the RBI’s monetary policy statements, credit cycles, and the quarterly earnings of its constituents.
In October 2024, the Securities and Exchange Board of India (SEBI) released a circular announcing that its weekly expiry options would no longer be available, and currently, the Bank Nifty options are available only with a monthly expiry date.
Nifty 50
The Nifty 50 index is a benchmark index of the National Stock Exchange (NSE) that comprises 50 large-cap stocks from different sectors. The Nifty 50 option chain has both weekly and monthly expiries on Tuesday following SEBI’s October 2024 circular. The NSE’s India VIX, which is derived from the option premiums of the Nifty 50, is the most popular implied volatility index in Indian markets and is indicative of the market volatility in the next 30 calendar days.
The implied volatility of Nifty 50 options continues to be high on the days around the Union Budget announcements, RBI monetary policy and US Fed decisions, which lead to high activity across both the call and put strikes.
Nifty Midcap Select
The Nifty Midcap Select index comprises 25 midcap companies listed on the NSE and is known to exhibit larger percentage swings than the large-cap indexes during periods of broad market stress. Since midcap stocks carry higher beta, the index amplifies directional swings on both sides, particularly during risk-off periods and sharp sector-rotation events.
In times of volatility, Nifty Midcap Select options can experience larger premium expansion, making them an attractive instrument for traders seeking higher percentage gains for every premium they put in. The index also has meaningful exposure to sectors such as financials, consumer-oriented businesses and capital goods, making it more sensitive to sector-related events.
Sensex
The Sensex is the BSE’s benchmark index and consists of 30 large-cap stocks across various sectors. The Sensex option chain has also shifted its weekly and monthly expiries to Thursday. Since there is a considerable overlap in large-cap stock constituents, Sensex options often trade in tandem with Nifty 50 options.
Traders who wish to trade on the BSE derivatives platform or prefer strategies based on BSE-listed instruments often choose the Sensex option chain. During periods of high uncertainty, implied volatility in Sensex options is likely to increase near macro events such as RBI policy announcements, the Union budget, and global risk events.
The bottom line
The index options market in India offers a unique range of volatility profiles, from the Bank Nifty, which has a high concentration of banking stocks, to the Nifty 50 options, which is NSE’s benchmark index. The Sensex option chain offers traders an alternative to Nifty index options, while the Nifty Midcap Select offers options exposure to a basket of mid-cap stocks.
In all these contracts, the common drivers of high implied volatility are RBI policy dates, quarterly earnings cycles and global macro events. Traders who follow these events closely are more likely to be in a better position when premiums expand significantly across strikes.
