E-Mini Nasdaq Futures Volatility Forecast (24/04/2011)

E-Mini Nasdaq futures on Monday closed at 2,291 whilst the closing price on Saturday the 15th was 2,310: a sharp drop indeed!!! The market then recovered and got back to 2,310 but the ending of the week experienced one of the most violent rallies over the last 5-6 months because E-Mini Nasdaq futures rose to 2,355 on Wednesday and closed at 2,373 on Thursday.

The actual volatility is 0.48% – 0.5% (7.6% – 7.9% annualised) and its value is even lower than the equilibrium point which is set around 0.65% (10.3% in annual terms) implying that the next days will probably see a shy augment of market fluctuations because the curve will try to mean revert.

Specifically, a small increase in the conditional variance could destabilise the price action and there might be a very short term retracement in the first trading day which could drag futures prices back into the 2,365 zone.

However, the retracement should be temporary because once achieved the equilibrium point the volatility should remain almost constant favouring an ulterior recovery of the price.

The HyperVolatility team is bullish on E-Mini Nasdaq futures and we will place some longs as soon as the volatility will settle because the price should achieve the 2,380 – 2,385 area by the end of the next week.

VXN Index Volatility Forecast (24/04/2011)

The great drop that pushed the Nasdaq Index down the last Monday did not really affect its implied volatility Index whose fluctuations continued to decrease constantly over the last days. In fact, the VXN opened at 18.4%dropped to 16.4% and closed at 15.8% on Thursday.

The actual volatility is 4.1% (14.2% monthly) and the slope of the curve is clearly signalling that the conditional variance of the VXN Index has now touched the bottom and that it will probably remain stable over the next trading days.

On the other hand, the VXN Index has touched its lowest level since the beginning of the 2010 and the TGARCH curve visibly displays a mean reverting process that has now arrived to an end and that could be followed by an apparent period of calm before exploding again.

Furthermore, we expect a period of relative low conditional variance which should favour the underlying market and make the implied volatility eventually even cheaper than it is. However, in the medium term we are expecting an ulterior and powerful rise of the VXN Index which could push down the underlying and make quite profitable a long volatility strategy.

The HyperVolatility team remains moderately bearish on the VXN Index and we believe that the market will fluctuate between 14% and 15.5% over the next trading days before eventually dropping into the 13.8% zone, news permitting.

E-Mini Nasdaq Futures Volatility Forecast (18/04/2011)

The HyperVolatility team forecasted a sideways movement of the Index and our analysis was once again as accurate as useful.

Particularly, E-Mini Nasdaq futures opened at 2,309 dropped to 2,292 in the first 2 days but a further rise brought prices back to 2,309 and, although on Thursday the Index plummeted once again to 2,301, the closing price hit 2,310 on Friday. Indeed, a very choppy week.

The actual volatility is around 0.78% – 0.8% (12.3% – 12.6% annualised) but the TGARCH plot is visibly showing a very flat curve which is quite unusual for a high volatility market such as the Nasdaq Index.

Specifically, if we look at the chart we notice that in January 2011 we had a very similar situation but after a relatively calm period the conditional variance exploded bringing the curve from 0.55% to 1.4%(8.7% – 22.2% annualised) in a few days.

We believe that a very similar scenario is going to hit the market and a bullish VXN Index forecast confirms our hypotheses.

The HyperVolatility team remains bearish on E-Mini Nasdaq futures because we believe that futures prices are going through a sharp retracement which could bring them back into the 2,230 area by the end of the week.

VXN Index Volatility Forecast (18/04/2011)

The last week we were bearish on the VXN Index and our analysis proved accurate once again. In fact, the market opened at 19.09% dropped to 18.5% and closed on 17.48% on Friday.

The actual volatility has now achieved the bottom and it is currently trading around 4% (13.8% monthly). However, the decrease in the VXN was quite smooth and without short term retracements that make the current figure both quite suspicious and unstable.

Particularly, the volatility of the VXN is likely to mean revert over the next trading days and therefore more market fluctuations are expected in the market implying that the VXN Index could achieve 20% whilst its volatility should get back up again in the 7% – 8% area (24.2% – 27.7% monthly).

The HyperVolatility team is bullish on the VXN Index because an explosion in market fluctuations seems to be the most likely scenario. Consequently, any short volatility positions should be closed or heavily hedged in order not to get hit by unwanted and wild market swings.

Moreover, the Nasdaq100 Index will inevitably be affected by such a phenomenon and we believe that the Hi-Tech Index will experience some sharp retracements.

E-Mini Nasdaq Futures Volatility Forecast (10/04/2011)

E-Mini Nasdaq futures unexpectedly dropped over the last week dragging the price back into the 2,320 area despite the volatility plot remained practically unaltered.

Specifically, the actual volatility is around 0.73% (11.5% annualised) and the TGARCH curve does not suggest any potential rise in the conditional variance over the next trading days. On the other hand, the price drop we had the last week was not accompanied by a surge of market fluctuations meaning that many investors did not probably liquidate all their long positions.

However, we believe that, although the TGARCH curve is flat, a short term retracement is already on its way but it could be anticipated by a last attempt to bring the price back into the 2,335 – 2,340 area.

The HyperVolatility team is expecting a sideways movement of this market because the volatility could increase over the next trading days pushing down prices even further. Consequently, we will wait for the conditional variance to augment before placing our short position but should not that be the case we will probably step aside and monitor the volatility while waiting for the next week.

VXN Index Volatility Forecast (10/04/2011)

The bearish view we had on the VXN Index paid off, although we were expecting a more robust movement, since the market opened at 20.05% dropped to 19.32% and closed at 19.76% on Friday.

The current volatility of the VXN Index is 5.3% – 5.6% (18.3% – 19.4% monthly) and the TGARCH curve shows, once again, a downward sloping curve which is probably going to bottom around 4% – 4.5% (13.8% – 15.5% monthly).

The conditional variance of the VXN Index is visibly close to its equilibrium point and therefore an ulterior down move of the Index should be the most likely scenario for the next trading days.

Specifically, we believe that the implied volatility Index for the Nasdaq100 will touch the 18.5% – 18.7% area before the end of the next week implying a potential rise of the underlying market.

The HyperVolatility team remains bearish on the VXN Index but without a clear signal we will not enter the market.

Furthermore, we will carefully monitor the volatility over the next trading days because the mean reverting point is quite proximate and a short term rise of volatility could occur quite easily if the balance level is approached too fast. Should this be the case we would probably look for short opportunities.

E-Mini Nasdaq Futures Volatility Forecast (03/04/2011)

The last week we forecasted a rise of E-Mini Nasdaq futures towards the 2,330 -2,335 and indeed the closing price on Friday was 2,337 points. Furthermore, we predicted a mean reverting movement of the TGARCH curve in the 0.5% area (7.9% annualised) and an immediate stabilisation of market rate fluctuations once this level had been achieved: the volatility is now at 0.58% (9.2% in annual terms).

The TGARCH plot is now displaying a stable curve and it is reasonable to believe that such fluctuations will remain unaltered for the rest of the week although a short term augment of volatility could bring a bit of uncertainty in the price action.

The HyperVolatility team is still bullish on this market and we will try to place some longs because the market should break through the 2,345 points and test the 2,350 level by the end of the week.

Furthermore, the falling volatility of the VXN Index and the good unemployment figures showed in the Non Farm Payrolls should push up investors’ confidence and consequently drive futures prices up.

VXN Index Volatility Forecast (03/04/2011)

Our bearish view on the VXN Index has been confirmed, although on Monday the opening was at 20.78%, because the implied volatility of the Nasdaq Index collapsed to 19.41% the last Friday.

The actual volatility is 5.3% (18.3% monthly) but the TGARCH curve is still downward sloping highlighting that the mean reverting process has not been completed yet.

However, the return of volatility towards its equilibrium point is not fast and that is why the 4% level (13.8% monthly) is probably going to be achieved in 2-3 weeks time, other things being equal.

The decreased conditional variance of the VXN should favour an ulterior recovery of the underlying market which should keep rising over the next trading days. In fact, there is a positive correlation between the stochastic volatility and the VXN Index, hence, a drop in the volatility of the VXN is going to imply a diminishing value of the implied volatility over the next trading days.

The HyperVolatility team remain bearish on this market and we believe that the 17.5% – 18% area could be touched by the next Friday. However, we will use this information to profit from the underlying which is going to rise even further and that is why we will place some longs on Nasdaq futures.

E-Mini Nasdaq Futures Volatility Forecast (27/03/2011)

The staff of HyperVolatility was right once again!!! The Nasdaq was expected to rise sharply and indeed the American hi-tech Index performed extremely well over the last trading week.

The volatility plot is a perfect example of how sharp, powerful and fast the rise was: the TGARCH curve is now at 0.1% (1.5% annualised). The volatility touched its 5 months low and therefore the next trading days will clearly see an augment in the market fluctuations rate which could revert to 0.5% (7.9% in annual terms) by the next Friday.

The surge in volatility should accompany a short term drop which will probably drive the market into the 2,290 – 2,300 area but we believe that achieved the 7.9% level the volatility will remain constant whilst E-Mini Nasdaq futures will head north again.

The staff of HyperVolatility will monitor the market and look for long opportunities as soon as the market will give some sign of recovery. We are probably going to head a choppy week but the Index should rally and achieve 2,330 – 2,335 by the next Friday.

VXN Index Volatility Forecast (27/03/2011)

The last week a drop in VXN volatility was forecasted by our staff and indeed we have seen the index opening at 23.82%, dropping to 20.59% and closing at 20.78% the last Friday. HyperVolatility was right once again.

The volatility of the VXN Index is now fluctuating around 7.7% (26.6% monthly) and the TGARCH plot seems suggesting a further plummet of the conditional variance in the upcoming trading days.

The volatility is clearly trying to achieve its equilibrium point which is around 4% – 4.5% (13.8% – 15.5% monthly) and this down move would accompany an ulterior rise of the Nasdaq Index.

The staff of HyperVolatility remains bearish on the VXN Index because it should revert towards the 15% – 17% area by the end of the week. We will try to play accordingly by selling implied volatility and going long Nasdaq futures.

However, should the week begin with some bad news from Libya or Japan we will probably close our positions and wait for the next opportunity because the situation, globally speaking, is still extremely delicate.

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