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VIX Index Volatility Forecast (02/05/2011)

The last week we forecasted a further drop of the VIX Index and we were right once again. The implied volatility index opened at 15.7% dropped to 15.3% and then closed at 14.7% on Friday.

The current volatility is 5% (17.3% monthly) and the TGARCH curve seems suggesting an ulterior drop of the VIX Index which, should that be the case, would bring, the market in the 12.5% – 13% area.

Nevertheless, the situation of the VIX Index is not far from what we wrote for the VXN Index in our previous analysis. In fact, the volatility curve has been trading within a narrow range for a very long time and the actual VIX measurement is ranked almost at the bottom of the last quartile.

An increase in volatility now seems to be the most probable scenario even if we reckon that a bit of sideways play could take place before the definite explosion happens.

The HyperVolatility team is bullish on this market and we believe that the conditional variance will increase over the next trading days and touch the 8% -8.5% area by the end of the week (27.7% – 29.4% monthly).

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