VIX Index Volatility Forecast (18/04/2011)

The last week we were expecting the VIX to plummet into the 16.5 % – 17% area and the HyperVolatility team was right once again. Specifically, the VIX was trading at 16.5% on Monday but it dropped to 16.9% on Wednesday and closed even lower at 15.3% the last Friday.

The actual volatility is 4.5% (15.5% monthly) but, like for the VXN Index, the volatility touched the mean reverting point and the decrease was too “calm” and too fast.

What is going to happen? Probably, the implied volatility index will rise once again over the next trading days bringing more instability in the underlying market.

Moreover, an immediate explosion of the conditional variance could easily push the curve towards the 7.5% – 8% area by the next Friday (25.9% – 27.7% monthly) and since there is a positive correlation between the volatility of the VIX and the VIX itself the last should rise too and achieve the 18.5 – 19.5% area.

The HyperVolatility team is quite bullish on the VIX Index and should our forecast be true the S&P500 would be irremediably affected by such an analysis.

In other words, the retracement the S&P500 went through the last week could continue in the next trading days and become more serious and sharp than what we expected.

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