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E-Mini S&P500 Futures Volatility Forecast (02/05/2011)

The quantitative based forecast provided by the HyperVolatility team proved extremely useful and profitable once again!!! E-Mini S&P500 futures rose as expected and the last week profit target (1,340 – 1,345 points) has been largely surpassed. The American Index opened at 1,340 rose to 1,355 and then closed at 1,363 on Friday: a great trade!!!

The volatility is fluctuating around the 0.41% level (6.5% annualised) and the TGARCH curve is displaying a stable scenario which is going to push futures prices even higher should things remain unaltered.

Nonetheless, it is not difficult to notice that the conditional variance has been plummeting since March and that the current situation is unstable because such a low volatility measurement cannot remain unchanged forever.

The mean reverting point has been clearly touched and the prolonged flatness of the volatility curve should be interpreted as the calm before the storm because, at this point, an augment of the conditional variance is very likely to happen.

The HyperVolatility team is bearish on E-Mini S&P500 futures and we believe that the price will be pushed back down in the 1,330 area by the end of the week whilst the volatility should achieve the 0.8% – 0.85% area (12.6% – 13.4% in annual terms).

Consequently, we will look for short opportunities as soon as the volatility starts increasing but should not that be the case we would not enter the market at all.

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