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VXN Index Volatility Forecast (19/09/2011)

The VXN Index opened at 37.97 on Monday, dropped to 36 on Tuesday, plunged to 33.36 on Wednesday, touched 30.67 on Thursday and closed at 29.36 on Friday.

The current volatility is 6.1% (21.1% monthly) and the volatility curve seems now ready to complete its mean reverting journey which should end around the 4% – 4.5% threshold (13.8 -15.5% monthly) although some short term retracements are still likely to occur over the next trading hours.

The volatility of the VXN Index is clearly signalling that in the upcoming hours the implied volatility of the Nasdaq100 options should diminish but such a scenario is going to hold only if the concerns regarding European debt are going do not unleash an ulterior sell off.

The HyperVolatility team is moderately bearish the VXN Index which could eventually retest the 25% level by Friday. Nevertheless, the likelihood of a short term explosion of the conditional variance remains pretty high because despite the numerous meeting European politicians appear unable to come up with a concrete plan which would save Greece and prevent a domino effect which would destroy the entire old continent economies.

VXN Index Volatility Forecast (06/09/2011)

The VXN Index opened at 32.1 on Monday, settled at 32 on Tuesday, dropped to 31.3 on Wednesday and remained at the same level even on Thursday but on Friday it closed at 33.

The actual volatility is around 7.9% – 8% (27.3% – 27.7% monthly) and the TGARCH plot is displaying a curve which is downward sloping and right in the middle of a mean reverting process. However, the speed at which the conditional variance tend to collapse towards its long term equilibrium point has substantially diminished because, particularly during the final stage of the above mentioned movement, the volatility tend to fall down much more quickly than it is and therefore this phenomenon should be interpreted as a warning signal.

The big and violent spike the volatility experienced on Friday (from 31% to 33%) is a great indicator for investors ‘nervousness. The volatility usually rises or declines gently but these unexpected and sharp jumps are clearly indicating that the situation is not looking good.

The HyperVolatility team is bullish the VXN Index because the decreased mean reverting speed and high fear will probably push the index towards the 35% by Friday.

On the other hand, the volatility could decrease and retest the 30% level if Obama is going to announce big changes in the fiscal policy measures.

VXN Index Volatility Forecast (30/08/2011)

The VXN Index opened at 42 on Monday, dropped to 35.4 on Tuesday, settled at 35.6 on Wednesday, rose to 39.4 on Thursday and closed at 34.4 on Friday.

The actual volatility is 12% (41.5% monthly) and the TGARCH plot is showing a volatility curve which has now created a double top and seems ready to continue its mean reverting journey towards the 4% level (13.8% monthly).   The very last part of the curve displays an insignificant retracement that was caused by fear and nervousness before Bernanke’s speech but that should not alter the overall process.

The HyperVolatility team is bearish the VXN Index because the large up move should start mean reverting at an increased pace over the next trading hours implying that, given the positive correlation between the Nasdaq100 implied volatility index and its stochastic volatility movement, we should see readings around the 30% threshold around Friday, macroeconomics news permitting.

VXN Index Volatility Forecast (14/08/2011)

The HyperVolatility team forecasted a sharp increase in the VXN Index fluctuations, which is clearly evident from the chart, and according to our projections the Nasdaq’s implied volatility index was expected to touch the 38% – 40% area: our target was not only met but even surpassed. The VXN Index opened at 44.7% on Monday, dropped to 34.6% on Tuesday, touched 41.7% on Wednesday, plunged to 37.8% on Thursday and closed at 35.2% on Friday.

The current volatility is 16% (55.4% monthly) and the TGARCH is displaying a curve which is now trading sideways but that is very likely to mean revert and collapse towards the long term equilibrium point which is stable around the 4% level (13.8% monthly). The volatility reached its highest level, which was firstly tested during the “second phase” of the credit crunch in May 2010, and the fact that the conditional variance, in the 2010, started to collapse soon after having touched this point is an ulterior signal which confirms the mean reverting hypotheses we stated above.

The market should now recover for a while meaning that many people will start buying most of the shares that are now ridiculously cheap and the implied volatility in the Nasdaq’s option market should settle and retrace towards normality.

The HyperVolatility team is bearish the VXN Index because its stochastic volatility is indicating a retracement which is the initial part of the mean reverting process. The VXN Index is likely to plunge over the next hours and eventually settle around the 24% – 25% by the next Friday.

However, the way down will not always be neat and clear because some very short term bursts of the volatility could make the curve looks less even but, overall, there should not be further upward explosions.

VXN Index Volatility Forecast (08/08/2011)

The massive drop in all equity indices clearly did not leave the Nasdaq untouched and consequently its implied volatility. The VXN Index opened at 24.2% on Monday, rose to 25.7% on Tuesday, dropped to 24.7% on Wednesday, jumped to 31.6% on Thursday and closed at 33.7% on Friday.

The actual volatility is 11% (38.1% monthly) and the TGARCH plot is displaying a volatility curve which has now touched one of the highest points ever achieved by the VXN Index since the beginning of the 2010.

Moreover, it is important to point out that the very last part of the curve is extremely steep and there are no any signs of weakness implying that the next trading days could see even wider fluctuations of the implied volatility.

The implied volatility of Nasdaq Index will probably keep rising over the next trading hours because many investors will keep buying options in order to protect their stock portfolios and that’s why we think that a mean reverting movement towards the 4% level (13.8% monthly) is an eventuality more likely to occur the next week.

The HyperVolatility team is bullish the VXN Index because the volatility curve is still upward sloping and investors’ fear is pretty high.

The VXN Index should eventually retest the 38% – 40% area by Friday but the most volatile days will be probably concentrated in the first half of the week.

VXN Index Volatility Forecast (02/08/2011)

The VXN Index opened at 20.95% on Monday, rose to 21.58% on Tuesday, jumped to 24.7% on Wednesday, achieved 25.12% on Thursday and closed at 26.08% on Friday.

The actual volatility is 8% (27.7% monthly) and the volatility plot is displaying a curve which is now trading at one of the highest levels since April 2011 although the very last part of the curve shows a shy attempt to mean revert and begin its journey towards the 4% threshold (13.8% monthly) which clearly is the long term equilibrium point.

The VXN Index rose over the panic that many investors and traders are now sharing regarding the US debt ceiling and the upcoming macroeconomics news that will be released in the next days.

The HyperVolatility team is bearish the VXN because the positive correlation between the Nasdaq’s implied volatility index and its stochastic volatility measurement is a strong enough indicator which is signalling that a softening of the conditional variance will drag the VXN back down in the 17% – 18% area by Friday.

VXN Index Volatility Forecast (24/07/2011)

The VXN Index moved dropped consistently over the last week: the market opened at 22.4% on Monday, plummeted to 20.4% on Tuesday, touched 21% on Wednesday, dropped to 19.7% on Thursday and settled at 19.1% on Friday.

The current volatility is 6.2% (21% monthly) and the TGARCH plot is again displaying a volatility curve which is definitely downward sloping and still in the middle of a mean reverting process which will end once the long term equilibrium point, 4% – 4.5% (13.8% – 15.5% monthly), will be achieved.

The medium term trend remains bearish because the VXN should probably plummet to 16% – 17.5% in 15 – 20 days time but over the next trading days the mean reverting process, favoured by the lighter volume that summer months usually bring, is likely to continue its journey towards stableness.

The HyperVolatility team is bearish the VXN because the implied volatility of the Nasdaq Index is clearly going to head south although the process is not sure that is going to end its movement by the next Friday.

VXN Index Volatility Forecast (10/07/2011)

The last week we were bearish the VXN Index and we forecasted a drop of its volatility which would have, in turn, caused the Nasdaq’s implied volatility index to retrace and test the 13% – 14.5% area. Our target was not “hit” because the index settled at 17.4% but the bearish projection proved very accurate.

The VXN Index opened at 17.7% rose to 17.8% on Wednesday, dropped to 17.7% on Thursday and closed at 17.4% on Friday.

The actual volatility is 4.2% (14.5% monthly) and the TGARCH plot is evidently displaying a slightly downward sloping curve which will keep decreasing over the next hours and settle around 4% (13.8% monthly) which is the long term balance point for this market.

The conditional variance dropped quite significantly because the first days of the week saw a prolonged lateral movement of the underlying asset but what is really important to stress out is that Friday’s announcement left completely unchanged the volatility curve.

The HyperVolatility team remains moderately bearish on the VXN Index because the oscillation rate should decrease and then move sideways all week long. Specifically, the implied volatility index should touch 17% – 17.2% and trade within this range until the next week.

However, if the Index surpasses the 17.7% threshold we would probably interpret that movement as a bearish signal for all major equity indices.

VXN Index Volatility Forecast (04/07/2011)

The last week we were expecting a bearish move of the VXN Index and the HyperVolatility team was right once again. In fact, the Nasdaq implied volatility Index opened at 21.9 dropped to 20.7 on Tuesday, settled at 18.8 on Wednesday, decreased to 17.8 on Thursday and closed at 17.3 on Friday.

The actual volatility is 6% (20.7% monthly) and the chart is showing a volatility curve which is right in the middle of a mean reverting process which is going to bring back the volatility of the VXN Index back into its balance level which is identifiable around the 4% zone (13.8% monthly).

It is reasonable to believe that the flattening in volatility could continue over the next hours but once achieved the long term equilibrium point, which is set around the 4% – 4.5% level (13.8% -15.5% monthly) there could be some very short term volatility explosion whose intensity and magnitude should not be high.

The HyperVolatility team remains bearish the VXN Index because the positive correlation between the stochastic volatility of the Index itself and its fluctuations seems highlighting the continuation of the mean reverting process. On the other hand, the drop should not be very consistent and it is unlikely that the VXN will end up below the 13% – 14.5% threshold and that is precisely why the short term oscillation of the conditional variance should maintain the implied volatility Index around this level.

VXN Index Volatility Forecast (27/06/2011)

The bearish view we had the last week was confirmed by the sharp drop of volatility over 4 days although the up move occurred on Friday transformed an almost perfect bear week in a sideways one. In particular, the market opened at 22.07 dropped to 20.2 on Wednesday, moved to 20.7 on Thursday and jumped to 22.5 on Friday.

The actual volatility is 7.9% (27.3% monthly) and the TGARCH plot is clearly displaying a downward sloping curve which seems to suggest that the upcoming days will see a softening of the volatility and therefore a reduced percentage of market swings.

However, it is worth pointing out that the VXN Index was nicely collapsing, as we correctly forecasted the last week, but the great changes which affected the crude oil market twisted the “natural” fluctuations of equity indices and this caused the augment of the conditional variance.

The HyperVolatility team is still bearish the VXN Index because the volatility of the Index, which is positively correlated to the price, is clearly dropping and such a phenomenon is going to drag down the price which should touch 18.5% – 19% by Friday.

We will monitor the market quite closely because some unexpected macroeconomics news could bring some unwanted surprise but at least this week there should not be ground-breaking news.

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