British Pound Futures Volatility Forecast (02/05/2011)

The HyperVolatility team was right once again!!! The 165.9 – 166 area we set as profit target last week has been abundantly surpassed by British Pound futures which opened at 164.6 rallied to 166.2 and closed at 116.9 on Friday.

The volatility is now 0.34% (5.3% in annual terms) and the sharp drop, which is clearly visible at the right hand of the chart, has been caused by the violent and consistent rally of British Pound futures over the last days.

However, it is quite likely that TGARCH curve will tend to revert towards the 0.43% area (6.8% annualised) in the upcoming days and such a phenomenon is probably going to push futures prices down.

The increasing depreciation of the US dollar is likely to take a short term rest (read retracement) because the 167 level is the highest rate ever achieved in almost 1.5 years. As a consequence, many investors and traders will tend to secure their positions and bank in the profits accrued so far because we are now sailing in unexplored waters.

The HyperVolatility team is bearish on British Pound futures and we will place some short positions as soon as possible because:

1)    We believe that prices won’t break through the resistance point placed at 167

2)    The augment of volatility is going to favour a short term retracement which should drag futures prices back into the 163.5 – 164 area

3)    Many investors will tend to protect their portfolios and close their long positions because the higher the market goes the weaker the price action becomes

4)    The depreciation trend of the greenback can’t last forever

2 Responses to British Pound Futures Volatility Forecast (02/05/2011)

  1. Robert Widmann

    Is Malkiel right or wrong? The group I belong to, New York Options, Traders believes Malkiel is right and concentrates on developing direction neutral strategies. Could they be wrong? Rob W

    • Sorry for the late reply. Is Malkiel right or wrong regarding which topic? If you refer to the market efficiency theory my answer is definitely no. A managed portfolio (where portfolio managers or traders know what they are doing) should generate returns that are higher than the benchmark index most of the time. Furthermore, he thinks market are efficient because they quickly adjust to information but the question is: does anyone have the same set of information at any given time? Is asymmetric information only a myth?

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