E-Mini S&P500 Futures Volatility Forecast (18/04/2011)

The last week we “predicted” a retracement of the American Index and our short positions proved very profitable. The E-Mini S&P500 futures opened at 1,320 dropped at 1,308 but on Friday they rose again and closed at 1,318.

We closed our short positions on Thursday because our profit target was around 1,322 and since futures prices sharply plummeted to 1,308 and remained in the 1,308- 1,309 area for 2 consecutive days we decided not to risk what already had earned because the market seemed not be willing to break through the 1,310 support.

Furthermore, the conditional variance started to decrease highlighting that many market participants were ready to bank in profits and buy back their long positions, phenomenon which would have increased the market price as effectively it was.

The current volatility is around 0.78% (12.3% in annual terms) but although the TGARCH plot is showing a downward sloping curve we believe that the upcoming days will be quite volatile with readings around 1% – 1.1% (15.8% – 17.4% in annual terms).

Principally, since the middle of March there has been a constant decline of market fluctuations and given the fact that the bottom has now be reached there is a very high probability, in statistical terms, that the curve is going to mean revert.

The HyperVolatility team remains bearish on E-Mini S&P500 futures because should the augment in volatility and the bullish view on the VIX really occur we would see futures prices plummeting into the 1,290 area.

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