Swiss Franc Futures Volatility Forecast (24/04/2011)

The last week we were bullish Swiss Franc futures and indicated the 112.5 – 112.7 area as our expected profit target and the HyperVolatility team got it right once again. The market opened at 111.5 rose to 112.6 and closed at 112.8 on Thursday: indeed a great and profitable trade!!!

The actual volatility is 0.92% (14.6% annualised) and the TGARCH curve is still upward sloping although the augment was caused by a rise in price and therefore an inverted leverage effect. Also, the volatility explosion neither present any sign of weakness nor short term retracements and this is clearly a warning signal that should not be ignored.

The last week we said that we were going to look for short opportunities if the volatility had touched the 0.7% level (11.1% in annual terms) and as soon as we achieved that level we protected our long position with very tight stops. However, the retracement we announced the last week is now on its way and we believe that Swiss Franc futures are going to head south soon.

Specifically, the volatility curve will tend to decrease but in this case the asymmetric effect will not be considered and therefore a dropping volatility will probably accompany a price decrease. In particular, the curve should get back into the 0.68% – 0.7% area (10.7%- 11.1% annualised) whilst futures prices are going to retest the 111 – 111.5 zone.

The HyperVolatility team is quite bearish on this market and we will place some short as soon as possible.

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