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VXN Index Volatility Forecast (27/02/2011)

Our bearish view on the VXN Index was confirmed by the fact that although the market opened at 23.3% and topped at 24.3%, it then mean reverted and closed at 20.6%. Surely, a very nice weekly trade!!!

The volatility of the VXN is now at 11.8% (40% annualised) which is clearly an extreme figure, if we consider the last 5 months oscillations, but the very last part of the chart is displaying a curve which is now downward sloping.           Specifically, the volatility will tend to mean revert to its equilibrium point which remains at 4.5% (15.5% annualised) and this will imply a softening of VNX Index fluctuations.

The staff of HyperVolatility remains bearish on the VXN Index because its volatility, after the great spike provoked by the Middle East turmoil and the consequent retracement which affected all Equity Indices, is going to diminish over the next trading days.

We will adopt the same strategy we mentioned the last week: shorting Nasdaq100 options whilst going long Nasdaq futures. Nevertheless, this week is full of macroeconomics data whose figures could change the scenario: US Manufacturing Index, Bernanke’s Speech, Initial Job Claims, Non-Farm Productivity, Non-Farm Payrolls and US unemployment rate.

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