VIX Index Volatility Forecast (10/04/2011)

The implied volatility Index did not perform as well as we thought because the last week we forecasted a further drop of the VIX in the 16.5% area and until Thursday our analysis proved accurate but on Friday the Index rallied to 17.87% changing the scenario and transforming a bearish week in a moderately bullish one.

Conversely, the volatility of the VIX did not change much because the TGARCH plot is still displaying a downward sloping curve which is now 5% -5.2% (17.3% – 18.3%monthly) and the mean reverting process is now very close to the equilibrium point placed around 4% – 4.5% (13.8% – 15.5% monthly).

The next trading days should see, once again, a weak drop of the VIX Index which should probably touch the 16.5% – 17% area but the fact that we are very close to the mean reverting point will play an important role in our trading strategy.

The HyperVolatility team remains moderately bearish on the VIX Index but even if going long S&P500 futures could seem a good idea we will wait for a clear signal. Should not that be the case we would stay flat but an increasing volatility would “obligate” us to look for short opportunities.

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