India VIX Futures contract
India VIX Futures contracts will be available for trading as scheduled from tomorrow. As already wrote in my previous article about India VIX trading in futures on National Stock Exchange of India , 3 weekly contracts are available for trading at any time.
National Stock Exchange of India vide their circular NSE/FAOP/25978 on 25 Jan 2014 announced the lot size of the contracts. Earlier it was not mentioned by exchange. The lot size of India VIX Futures contract will be 750 and in multiples. At this point of time (After EOD of 25 Feb 2014), VIX is at 13.95. As mentioned earlier as each contract value is 10 lacks the lot size is decided as 750 to meet this requirement. When the announcement of India VIX Futures contract introduction for trading, India VIX was around 20. So I was expecting a lot size of 500.
The Calculation for determining lot size of India VIX Futures contract is as follows:
Contract value = 10,00,000
VIX = 13.95* 100 = 1395 (Quotation price is in multiples of 100)
Lot size = 10,00,000/1395 = 717 (Rounded off to 750).
Now as can be seen from past history of India VIX Futures data, it can trade well beyond 25, then the contract value at this lot size of India VIX Futures contract 750 will have a contract value of 17,50,000. As we know lot sizes in equity derivative lot sizes are not changed often. NSE has not yet mentioned in the circular how the India VIX Futures contract lot sizes will be changed. (The difference between equity derivatives and VIX Futures is that equity derivatives have monthly expiry which expiry last thursday where as VIX futures expire weekly on every tuesday). Even with weekly variations, contract value may swing widely.
India VIX Futures contract Lot Sizes and Spreads
Further to encourage trading in India VIX Futures contract on NSE, Rebate of Transaction charges in respect of trades done in Futures contracts is announced. The rebate ranges from 10% to 40% for turnovers from 25 crores and above to 100 crores and above. It will be from 26 Feb 2014 (India VIX Futures contract) to 31 Mar 2014. It will be further reviewed after 31 Mar 2014 depending on the volumes of transactions.
Daily Turnover in NVIX Futures Rebate structure
1) Upto first Rs.25 crores 10% reduction in the transaction charges
2) More than Rs.25 crores upto Rs.100 crores(on incremental Volume) 25% reduction in the transaction charges
3) More than Rs.100 crores(on incremental volume) 40% reduction in the transaction charges.
It is widely believed that introduction of India VIX Futures contract for trading will help traders and investors to better manage their risks. As VIX helps to gauge the pulse of the expected market movement over next 30 calendar days, it will be a useful addition for market participants.