VIX Index Volatility Forecast (06/06/2011)

We warned our readers against a short term explosion of the volatility and effectively so it happened, although our overall forecast on the S&P500’s implied volatility index was bearish.

In fact, the VIX opened at 15.4% rose 18.09% on Thursday and settled at 17.95% on Friday and even if we were expecting a move in the 20% area we can always say this is a good start.

The current volatility is 8.8% (30.4% monthly) and the TGARCH curve is now slightly downward sloping but, even in this case, the decrease in the conditional variance has been primarily caused by a sideways movement of the VIX rather than an effective recovery of the price action.

Many equity indices plummeted and moved laterally over the last trading days and the VIX plot simply mirrors the great uncertainty surrounding financial markets: at first the implied volatility rose indicating fear and concerns but it then moved sideways for almost 2 days highlighting the great indecision amongst traders and investors.

The HyperVolatility team is bullish on the VIX Index because the heavy impact that bad macroeconomics news had on equity indices is just at the beginning stage and more market fluctuations are expected in the upcoming days.

The implied volatility index should keep rising and eventually touch the 20% level by Friday.

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