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VIX Index Volatility Forecast (30/08/2011)

The VIX Index opened at 42.4 on Monday, dropped to 36.2 on Tuesday, settled at 35.9 on Wednesday, jumped back up on Thursday, when it touched 39.7 and closed at 35.5 on Friday.

The volatility is around 13% (45% monthly) and the TGARCH plot is displaying an overall downward sloping curve which should continue its mean reverting journey in the upcoming hours. The very last part of the chart shows a small retracement but, as mentioned for the VXN Index, the waiting for Bernanke’s speech on Friday made many investors a bit nervous and this caused the conditional variance to increase.

However, even if some short retracements of the volatility can always happen it is worth pointing out that the oscillations of the VIX Index are decreasing and, given what we can see in the chart, it is likely that the next trading days will see an ulterior flattening of the variance.

The HyperVolatility team is bearish the VIX Index because its rate of fluctuations should diminish and the mean reverting process should become more and more evident. Consequently, we expect the VIX to retest the 30% threshold by Friday.

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