VIX Index Volatility Forecast (27/09/2011)

The VIX index opened at 32.7 on Monday, rose to 32.8 on Tuesday, jumped to 37.3 on Wednesday, achieved 41.3 on Thursday in a very volatile session and closed to 41.2 on Friday.

The actual volatility is 8% (27.7% monthly) and the TGARCH plot is showing an upward sloping curve which, in the very last part, does present some signs of retracement that, however, should be carefully interpreted given the delicate financial situation we are in.

The massive sell-off we saw the last week provoked an augment in volatility of volatility but the spike was not proportioned to the violence of the underlying movements. The VIX closed for 2 consecutive days above the 41% level and even during the big market drop occurred in May 2010 the aforementioned point was only barely touched implying that the probability for a mean reverting movement are now very much increased.

The HyperVolatility team is bearish the VIX index because the very last part of the chart should be considered as a short term explosion which is not going to affect VIX fluctuation over the medium term. Consequently, we could see the S&P500 implied volatility index to retrace and eventually close around the 30% level before Friday.


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