VXN Index Volatility Forecast (27/03/2011)

The last week a drop in VXN volatility was forecasted by our staff and indeed we have seen the index opening at 23.82%, dropping to 20.59% and closing at 20.78% the last Friday. HyperVolatility was right once again.

The volatility of the VXN Index is now fluctuating around 7.7% (26.6% monthly) and the TGARCH plot seems suggesting a further plummet of the conditional variance in the upcoming trading days.

The volatility is clearly trying to achieve its equilibrium point which is around 4% – 4.5% (13.8% – 15.5% monthly) and this down move would accompany an ulterior rise of the Nasdaq Index.

The staff of HyperVolatility remains bearish on the VXN Index because it should revert towards the 15% – 17% area by the end of the week. We will try to play accordingly by selling implied volatility and going long Nasdaq futures.

However, should the week begin with some bad news from Libya or Japan we will probably close our positions and wait for the next opportunity because the situation, globally speaking, is still extremely delicate.

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