VIX Index Volatility Forecast (02/08/2011)

The VIX Index opened at 19.35% on Monday, rose to 20.23% on Tuesday, touched 22.98% on Wednesday, achieved 23.74% on Thursday and closed at 25.25% on Friday.

The volatility is now 8.1% (28% monthly) and the TGARCH plot is showing a volatility curve which has now achieved, like for the VXN Index, one of the highest points over the last 30 trading months. Also, if we exclude the big market crashes occurred on April-May 2010 and May 2011 we can easily notice that the actual readings are amongst the highest ever achieved by the VIX in the examined period and the probability of a “mean reverting journey” is very high.

The great increase in the VIX fluctuations is clearly associated to the US debt ceiling dispute going on during these hours. Furthermore, the upcoming days will see quite a few macroeconomics news released by governmental authorities such as NFP, Initial Jobless Claims, Unemployment change, etc whose side effect is to keep traders and investors worried.

The HyperVolatility team is bearish the VIX Index because, even in this case, the mean reverting effect of the S&P500 implied volatility index should manifest itself . Specifically, we are expecting the VIX Index to retest the 18% area by Friday, macroeconomics news permitting.

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