Fear index tops 50 level as U.S. stocks slide
Monday, Mar 02, 2009 5:36PM UTC
By Doris Frankel
CHICAGO (Reuters) - The index known as Wall Street's fear gauge, the Chicago Board Options Exchange Volatility Index <.VIX>, spiked higher on Monday as U.S. stocks slid on deepening worries about the financial sector.
Risk perceptions rose as the widely popular VIX index pushed above the key 50 level, reflecting the bearish tone in the stock market.
The VIX was up 11.20 percent to 51.24 after notching a session high of 51.84 near midday.
"The headlines from the financial world remain grim and the risks to the global economy are high," said Frederic Ruffy, options strategist at WhatsTrading.com. "In addition, investors are nervous ahead of a busy week of economic data, including key payroll data on Friday."
Financial stocks were under pressure after insurer American International Group <AIG.N> reported a record $61.7 billion quarterly loss and reached a new government bailout deal..
"People are a little more frightened about the news that has come out during the last two trading sessions, which included AIG and disappointing economic data," said Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim Group in Chicago.
Combined with the upcoming monthly jobless number, people are afraid to sell options and are also bidding up option premiums as they seek protection, he said.
"We are seeing a dramatic increase in option premiums today as the major stock benchmarks set new multi-year lows as selling pressure increases," said Scott Fullman, director of derivative investment strategy at broker-dealer WJB Capital Group in New York.
The Standard & Poor's 500 index <.SPX> shed 3.82 percent to 706.99, its lowest level since late 1996.
The VIX is a 30-day forecast of S&P 500 future volatility calculated from the S&P benchmark's option prices. Typically, the VIX and the S&P 500 are inversely related, with the VIX moving up when stocks decline.
The VIX's performance in the past few weeks has been unusually sedate given that the S&P 500 has broken key levels of support.
But on Monday, the high levels of actual volatility, event risk and demand for portfolio protection pushed the VIX decisively above the 50 level, Ruffy said.
(Editing by Leslie Adler)
Monday, Mar 02, 2009 5:36PM UTC
By Doris Frankel
CHICAGO (Reuters) - The index known as Wall Street's fear gauge, the Chicago Board Options Exchange Volatility Index <.VIX>, spiked higher on Monday as U.S. stocks slid on deepening worries about the financial sector.
Risk perceptions rose as the widely popular VIX index pushed above the key 50 level, reflecting the bearish tone in the stock market.
The VIX was up 11.20 percent to 51.24 after notching a session high of 51.84 near midday.
"The headlines from the financial world remain grim and the risks to the global economy are high," said Frederic Ruffy, options strategist at WhatsTrading.com. "In addition, investors are nervous ahead of a busy week of economic data, including key payroll data on Friday."
Financial stocks were under pressure after insurer American International Group <AIG.N> reported a record $61.7 billion quarterly loss and reached a new government bailout deal..
"People are a little more frightened about the news that has come out during the last two trading sessions, which included AIG and disappointing economic data," said Joe Kinahan, chief derivatives strategist at online brokerage thinkorswim Group in Chicago.
Combined with the upcoming monthly jobless number, people are afraid to sell options and are also bidding up option premiums as they seek protection, he said.
"We are seeing a dramatic increase in option premiums today as the major stock benchmarks set new multi-year lows as selling pressure increases," said Scott Fullman, director of derivative investment strategy at broker-dealer WJB Capital Group in New York.
The Standard & Poor's 500 index <.SPX> shed 3.82 percent to 706.99, its lowest level since late 1996.
The VIX is a 30-day forecast of S&P 500 future volatility calculated from the S&P benchmark's option prices. Typically, the VIX and the S&P 500 are inversely related, with the VIX moving up when stocks decline.
The VIX's performance in the past few weeks has been unusually sedate given that the S&P 500 has broken key levels of support.
But on Monday, the high levels of actual volatility, event risk and demand for portfolio protection pushed the VIX decisively above the 50 level, Ruffy said.
(Editing by Leslie Adler)