VIX Index Volatility Forecast (03/04/2011)

The last week we forecasted a drop in the VIX Index and effectively so it was. The Index opened at 19.44%, dropped at 17.7% in the middle of the week and closed at 17.4% the last Friday.

The current volatility of the VIX is around 6.8% – 7 %( 23% – 24.2% monthly) but the curve is still downward sloping highlighting a probable and ulterior plummet of market fluctuations over the next trading days.

Furthermore, the mean reverting process of volatility will tend to push back the curve towards the equilibrium point which is still stable around the 4% – 4.5% (13.8% -15.5% monthly) and the encouraging unemployment data of the last Non Farm Payrolls should facilitate the progression.

The HyperVolatility team remains bearish on the VIX because the Index should soon retest the 16.5% area and we will try to trade accordingly: we will sell implied volatility whilst going long the underlying.

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