German Bund Futures Volatility Forecast (22/11/2010)

The German Bund is probably one of the most important markets to look at when trading and investing. In fact,the fluctuations of the Bund are a clear indicator for the health of the global economy.

The recent selling pressure that affected this market did not really change the main scenario since the volatility remained fairly low at 0.35% (5.5% annualised) and this is a strong signal that many investors decided not to get rid of their long positions.

The staff of HyperVolatility remains bullish in the long run, however, in the short term, the fact that Germany decided to contribute to the bailing out of Ireland could provoke a rising of the yields that would inevitably drive down the price.

German Bund Futures Volatility Forecast (13/11/2010)

The last week we stated that if the German Bund Futures volatility had remained low the uptrend could not be really thought as over. Well, the volatility plot is unchanged and a downward sloping curve seems to indicate that bulls got back in the game.

The Bund seems extremely bullish at the moment (despite the Friday’s session) because volatility is still at 0.3% (4.7% annualised) and this does not really match the drop we saw in the market yesterday. This is a warning signal because such a market drop (from 130 euros to 129 euros in 2 days only) should have caused a drastic augment in volatility but the TGARCH plot displays a completely different scenario.

The staff of HyperVolatility remains bullish on this market and we expect the price to hit the 134 -135 area before the end of the 2010

German Bund Futures Volatility Forecast (07/11/2010)

The volatility of the German Bund slightly increased but it remained below the 0.38% level highlighting what we stated the last week: if the TGARCH volatility keeps fluctuating within a narrow range it is likely that the uptrend is not over.

Nevertheless, we lately saw a drop in the market which was clearly provoked by the QE2 announcements.The interest rates figures did not change at all but we are sure that the correction was caused by the Fed because interest rates level could be easily forecasted by investors and traders.

The Bund Futures prices should increase since both the volatility and price seemed not to have too much twisted the main trend, hence, the volatility should go back to the 0.20% area unless the Fed or the BCE decide to change the rules of the game.

German Bund Futures Volatility Forecast (31/10/2010)

The volatility experienced by the German Bund is now back to normal after the large expansion which  came with an heavy selling pressure.

At this point,  there are 2 scenarios that can be taken into account:

1) An additional drop of the market

2) A sharp rally of the price

According to what happened recently we should see a bounce of the price around the 133 – 134 euros area but the NonFarm Unemployment and the interest rates announcements expected this week could completely twist the market.

If the volatility remains stable at this level even during this week it is highly probable that the downward correction is over and that bulls are willing to get back but the staff of HyperVolatility suggests to buy back your shorts because a rally could easily wipe out your positions.

German Bund Futures Volatility Forecast (24/10/2010)

The German Bund is clearly under heavy pressure and the last week we saw an heavy selling taking place in the market.

There seems to be a robust support at 130 which,it would appear, investors are willing the re-test but the real problem is  IF THE BUND IS IN A TRUE BEAR MARKET WHY VOLATILITY KEEPS DIMINISHING?

The last week selling did not produce any increase in volatility ,which is quite suspicious for a bear market, and the HyperVolatility staff is still bullish on this market. The TGARCH volatility plot shows an extreme level of volatility and the question which immediately rises is: can it get any lower than this?

We suggest to be careful and you’d better watch your short positions on German Bunds because a large upward movement is expected.We think the change of the trend will being with a substantial increase of volatility which will stabilise soon after the rally.

As previously mentioned, the staff of  HyperVolatility remains bullish on Bunds unless the announcement of SERIOUSLY good macroeconomics data  breaks in.

German Bund Futures Volatility Forecast (17/10/2010)

The German Bund is probably one of the most important markets to analyse in order to understand how economy is improving.

The TGARCH volatility showed a downward movement despite the sideways trading experienced in this market from the beginning of October so far.              However, an increase of  the conditional standard deviation is clearly kicking in even if, given the drop that the price lately had to 130 euro, the rise should have been much higher.

It is important to say that the last friday was the 3rd Friday of the month when futures contracts expire, hence, the drop in price is likely to be due to the  liquidation of long positions before the delivery date.

The volatility continues to be suspiciously low for such a down movement and therefore we believe that we are looking at a short-term correction before the final rally. The volatility should remain stable at 0.35% in the long run but a sharp rise due to a steep upward move is quite likely to happen

German Bund Futures Volatility Forecast (12/10/2010)

The German Bund futures is considered to be one of the safest asset in the world. Such a reputation comes from the great stability that the Germany economy has. Therefore, a rise in the price of bund futures indirectly suggests that investors and traders are not anymore willing to put their money into stocks.

As we can see from the chart on the left the TGARCH volatility (assumed with a generalised error distribution) appears to be EXTREMELY LOW .Specifically, since the volatility is mean-reverting it is reasonable to believe that soon there will be a rise which will drive, more probably, the market down. However, the German bund,given the current economic environment, is still a popular asset amongst investors and therefore it would not be surprising to see a prolonged low volatility period.

Volatility Trading : Why ?

Over the last 10 years financial markets went through several changes and, as a consequence, many different trading techniques that were considered to be extremely efficient and profitable are now generating increasing losses.

The financial downturn completely twisted the way investors and traders look at markets and many analysts, mathematicians, econometricians and portfolio managers are talking about a new market paradigm.

In other words, nothing will be like it used to.

In my opinion, we will get back to “normal” trading conditions in terms of psychological approach to risk  in a 3-5 years time.

The reality is that the markets are not going to trend as fluently as they used to. Retracements, pull backs and temporary drops will occur more frequently and more violently. The old strategies cannot cope with that any more because the sub-structure of the market is not the same anymore.

Think of it. It’s like driving a car. Let’s assume we have 2 cars: the 1st one designed and constructed in the 1920 and the second one in the 2010.  Are they similar?  Breaks, gears and the steering wheel are still going to be there but the way you drive itwill be different. You can measure the speed more accurately, you can drive faster , you have much more technology there and the same thing happens in the market. You cannot win the competition with an old car. You can try but you will be inevitably left behind.

Volatility is the answer to the modern investment ‘s needs. As time goes by financial markets become more and more volatile so why not trading volatility considering it as an asset?

Financial press continuously states that volatility is increasing in the markets. So, why not taking advantage of it ?

As a matter of fact, just a restricted and well educated elite of traders know how to expertly profit from volatility changes over time. The truth is that volatility trading is DIFFICULT !!! It is not as easy as it might seem and many readings and lots of effort is required in order to gain an edge over the crowd.

The good side of it is that VOLATILITY TRADING IS PROFITABLE !!!

Markets will experience wider swings and sharper retracements which old-fashion techniques will not be able to capture anymore and therefore we have to update our knowledge to surf  those waves rather than being overcome by events.

There are many ways to trade volatility and, if correctly  interpreted, some volatility technical indicators can prove quite useful. However,  many researches demonstrated that when measuring volatility some mathematical models and econometric techniques outperform all the others in terms of accuracy.

Consequently, the more we know the better because more accurate forecasts will inevitably lead to more profitable trades.

So, Why would anyone trade volatility?   the answer is simple: IT WORKS !!!

Vito Turitto’s presentation at the London Traders & Investors Club (5 part)


Vito Turitto’s presentation at the London Traders & Investors Club (4 part)


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