E-Mini Crude Oil Futures Volatility Forecast (10/05/2011)

The last week we were bearish E-Mini Crude Oil futures because more volatility was expected to hit the market and our forecast proved to be enormously profitable. Specifically, the market opened at $ 113 dropped to $ 108 on Wednesday but the $ 98 per barrel registered on Friday was an absolutely shocking performance.

The actual volatility is around 7% (111% annualised, believe it or not) however it is important to point out that the massive drop the market went through has been mainly caused by a sharp appreciation of the US dollar, which inevitably dragged futures prices down, and by the transfer of significant capital operated by some commodity hedge funds because the fundamental picture (oil supply and demand) did not change much.

However, the upcoming days should see a gradual and constant decrease of the conditional variance because the current oscillation rate is clearly not sustainable in the long run. As a consequence, the diminished market fluctuations should favour a recovery of the price which should head north once again.

The HyperVolatility team is bullish on E-Mini Crude Oil futures and we will place some longs as soon as possible because the price should retest the $ 105 area by the end of the week whilst the volatility curve should mean revert and collapse towards the 1.8% level (28.5% in annual terms).

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