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VIX Index Volatility Forecast (06/09/2011)

The VIX Index opened at 32.2 on Monday, rose to 32.8 on Tuesday, dropped to 31.6 on Wednesday, touched 31.8 on Thursday and closed at 33.9 on Friday.

The current volatility is around 8% (27.7% monthly) and the TGARCH plot is still showing a downward sloping curve which is still trying to complete its mean reverting process and settle around the 4% threshold (13.8% monthly). However, like for the VXN Index, the speed at which the curve was collapsing decreased significantly meaning that the selling pressure that hit the market on Friday had a significant impact on the implied volatility and consequently on the volatility of volatility.

The HyperVolatility team is bullish the VIX Index because its mean reverting speed diminished drastically and a short term burst of the conditional variance is expected to occur within this week.

Should the panic prevail once again we would, almost certainly, see the S&P500 implied volatility index to retest the 40% – 41% although Thursday’s speech will prove decisive in the medium term.

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