VXN Index Volatility Forecast (13/06/2011)

The bullish forecast we gave you the last week proved to be very good and precise because the VXN opened at 19.5% (which was our initial target) it touched 19.9% on Wednesday, it plunged to 19.1% on Thursday and closed at 19.5% on Friday.

The volatility of the VXN Index at first rose and achieved 9% (31.1% monthly) but in the very last part of the week it suddenly began to drop and mean revert toward the equilibrium point which is still stable around the 4% area (13.8% monthly).

The fact that the implied volatility Index of the Nasdaq decreased although most of the equity indices were plummeting is clearly a warning signal which highlights the fact that many investors did not get rid of their long positions and did not alter the composition of their portfolios.

The HyperVolatility team is bearish on the VXN Index because the mean reverting process of the conditional variance should drag the Index down back into the 18% – 18.5% area by Friday, news permitting.

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