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VXN Index Volatility Forecast (20/02/2011)

The last week we forecasted a decrease of the VXN Index, whose volatility is now around 5.2% (18% in annual terms), but the Index opened on Monday at 17.4%, rose to 18.2% and the dropped back to 17.9%: practically a sideways week.

Specifically, the mean reverting movement of the VXN Index was the real cause of the diminishing of its volatility and the TGARCH plot highlights, once again, a downward sloping curve. In fact, the VXN volatility is still trying to get back to its equilibrium point which is around 4.5% (15.5% annualised) and it is reasonable to expect a further drop over the next trading days.

The staff of HyperVolatility remains bearish on the VXN Index and consequently we will try to maximise our returns by shorting Nasdaq100 options whilst some long positions will be entered on the Nasdaq100 futures market. The VXN could experience some short term wild fluctuations during US macroeconomics data release.

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