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VXN Index Volatility Forecast (17/01/2011)

The VXN Index is the equivalent of the VIX but for the Nasdaq100 Index. Likewise, the current volatility is 4% (63.48% annualised) and it seems that this level has constituted the equilibrium point over the last 3 years.

On the other hand, the great volatility of the Nasdaq100 Index indicates that the volatility of the VXN could increase sharply over the next days and touch 5.5% – 6% (87.2% – 95.2% in annualised terms).

The main difference between the VIX and the VXN is that the latter is more volatile during explosions even if they are less frequent whilst the VIX moves more often but in a more constrained way.

The staff of HyperVolatility is particularly bullish on the VNX because the volatility of volatility touched its lowest level and statistically speaking this information is very reliable because it is weighted against a data set of 3 years.

Consequently, an investor looking for opportunities in this market could either use options to lock in a volatility arbitrage trade or take a bearish view on the Nasdaq100 in the medium-term.

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