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VXN Index Volatility Forecast (14/03/2011)

The VXN index topped at 24.3% the last Thursday and since then the volatility has constantly decreased. The implied volatility of the Nasdaq options market is probably going to diminish in the medium term but given the current macroeconomic scenario a rise in volatility provoked by a falling equity market is not an occurrence to opt out so easily.

The actual volatility is 8% – 8.2% (27.7% – 28.4% in annual terms) and the TGARCH plot displays a downward sloping curve, however, the week is still long and the investor’s fear increases as news from Japan get released.

The staff of HyperVolatility will remain flat this week but we believe that an immediate rise in volatility fluctuations is quite likely to happen. Consequently, we won’t place any trade unless we get a clear sign of rising volatility and should that be the case we will buy put options and short the underlying.

However, if these market expectations will not be met we won’t enter the market and we will wait for the end of the week in order to get a better understanding of the situation.

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