Oct 24, 2010

Week in volatility, VIX forecast analysis

Equity indexes traded in a range this week, ending almost unchanged / slightly up over week. However VIX futures fell strongly across the board, declining an average 1.76 points, which VSTOXX futures fell 1.05 points. The sharpest decline was in Nov VIX futures (current front month, following October expiration 5 days ago) that feel almost 3 points from 24.05 to 21.10.

Despite this sharp decline I continue making bearish bets. It is true that we are in a low volatility regime, but my own research indicates that such low-volatility regimes are usually persistent, and provide a good opportunities for selling volatility. I plan to write more about this when I have more time.

October futures and options expired last Wednesday, settling at 21.41 . My forecast made last month for October expiration was 22.62 (error=1.21) vs market forecast 25.55 (error=4.14). I do not have yet forecast for Nov expiration, because of some software issues, however I plan to update the blog as soon as I have them.

Good luck traders, and hedge your deltas!

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