E-Mini S&P500 Futures Volatility Forecast (04/07/2011)

The HyperVolatility team was right once again and our analysis proved extremely profitable and accurate also this week. The bullish view we had on E-Mini S&P500 futures has been confirmed by the price action and our last week profit target 1,290 has been largely surpassed: a wonderful trade indeed!!!

Specifically, E-Mini S&P500 futures opened at 1,276, rallied to 1,294 on Tuesday, settled at 1,304 on Wednesday and kept moving higher until the end of the week, in fact, on Thursday the closing price was 1,314 whilst 1,335 was the last price print on Friday.

The actual volatility is 0.73% (11.5% annualised) and the TGARCH plot is visibly showing a sharply downward sloping curve which implies that, over the next trading days, the mean reverting process of the conditional variance will probably end. Additionally, the volatility of E-Mini S&P500 futures should reach and consequently settle around the 0.5% – 0.55% area (7.9% – 8.7% in annual terms).

On the other hand, the price rally was way too fast and too quick and that is why we believe that the softening of the conditional variance will primarily be due to a sideways movement of the price rather than to an ulterior explosion of futures prices.

The HyperVolatility team remains sceptic about the reliability of the last week up move and we think that the variance will touch its balance point and then mean revert dragging E-Mini S&P500 futures back down in the 1,270 – 1,280 area.

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