VIX Index Volatility Forecast (27/06/2011)

The last week we were expecting the VIX Index to retest the 18.5% threshold and effectively so it was. Our forecast was once again very accurate and precise but the bad news coming from a negative Initial Job Claim report and the crude oil market boosted investors’ fear and consequently the implied volatility of S&P500 options.

The volatility of the VIX Index is now trading at 6.1% (21.1% monthly) and the TGARCH is visibly showing a volatility curve which is right in the middle of a mean reverting process which is probably going to end once the conditional variance will have touched the long run equilibrium point which is still stable around the 4% – 4.5% area (13.8% – 15.5% monthly).

Additionally, it is worth noting that the volatility of the VIX started to decrease although the Index itself was in an uptrend, at least on Thursday and Friday, and we repeatedly mentioned the fact that there is no asymmetric effect between the VIX and its stochastic volatility.  This is a warning signal which is manifestly highlighting a non-sustainable situation in the market and that is why we believe that an ulterior retracement of the implied volatility of the S&P500 is a quite reliable scenario, at least statistically speaking.

The HyperVolatility team remain bearish the VIX Index and for the aforementioned reasons we expect the implied volatility to retrace and probably touch the 17% – 17.5% area by Friday.

Leave a Reply

Your email address will not be published. Required fields are marked *

Go back to top