E-Mini S&P500 Futures Volatility Forecast (27/09/2011)

E-Mini S&P500 futures opened at 1,197 on Monday, touched 1,195 on Tuesday, dropped to 1,156 on Wednesday, plunged to 1,124 on Thursday and closed at 1,130 on Friday.

The actual volatility is 2% (31.7% annualised) and the TGARCH plot is manifestly showing an upward sloping curve which is just the natural consequence of the sharp drop futures prices experienced the last week. However, the curve is not extremely steep, although pretty high, implying that the upside potential of the conditional variance could be limited.

The European sovereign debt crises is still the main issue causing sleepless nights to investors and traders but the intention expressed by EU policymakers to bail out European banks, extend the peripheral bond buying programme and increase the EFSF will probably cool down investors’ nervousness.

The HyperVolatility team is bullish E-Mini S&P500 futures because the volatility should keep mean reverting over the next trading hours whilst the price action is likely to retest the 1,250 – 1,260 area by Friday.

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