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VIX Index Volatility Forecast (21/03/2011)

The staff of HyperVolatility was right once again!! The volatility rose and so did the VIX Index which opened at 21.1%, increased to 29.4% and then closed at 24.4% on Friday.

The actual volatility is 12% (41.5% annualised) and it is quite likely that the curve will start to mean revert over the next trading days in order to get back to the equilibrium level which is still set around the 4% area (13.8% in annual terms).

The explosion in volatility was clearly caused by the falling equity markets, which have been put under pressure by the Japan’s heart quake and the riots in Libya, but the down movement should have run out of steam and therefore we believe that a softening of the VIX Index is more likely to happen.

The staff of HyperVolatility is moderately bearish on the VIX because the Index should get back in the 15% -17% area by the next Friday. Consequently, we will try to take advantage of such a forecast by entering some long positions on the S&P500.

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