Tags: fear | index | vix | debt

'Fear Index' Advances Most in a Week Since May 2010 on Debt Ceiling, GDP

Saturday, 30 Jul 2011 04:54 PM

The benchmark index for U.S. stock options, also known as Wall Street's "Fear Index," posted its biggest weekly surge since May 2010 as lawmakers failed to agree on raising the debt ceiling and data showed that the U.S. economy almost came to a halt.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, gained 6.4 percent to 25.25 as of 4:15 p.m. in New York. The gauge of options to protect against declines in the Standard & Poor’s 500 Index advanced 44 percent this week. It has risen five straight days, the longest streak in 12 weeks.

“Every day this week we’ve looked for some resolution to the debt ceiling crisis and every day confidence has been eroded and the market traded lower,” Neil Davies, head of structured equity products at SunTrust Robinson Humphrey Capital Markets in Atlanta, said in a telephone interview. “Then on top of that uncertainty there’s a very poor GDP number which throws into question the whole validity of the recovery.”

U.S. stocks fell amid concern negotiations had stalled on an agreement to raise the debt ceiling, while the economy grew less than forecast in the second quarter as consumers retrenched. The S&P 500 slipped 0.7 percent. Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed.

‘Scary Place’

“Any time you’re relying on politicians, especially in a partisan age, that’s a scary place for the market to be,” Jeremy Wien, head of VIX options trading for Chicago-based Peak6 Capital Management LLC, said in an interview. “No one knows what could happen or where risks would be. That’s the uncertainty and it’s scary enough to force the cost of insurance higher.”

VIX futures declined, indicating that investors are less concerned about stock-market declines later this year. Next month’s futures, which expire Aug. 17, lost 1.2 percent to 21.10. September contracts slumped 2.8 percent to 21.10.

The U.S. delay in agreeing to raise the debt limit runs the risk of a disaster on par with the collapse of Lehman Brothers Holdings Inc. in September 2008, John Gieve, who was deputy governor for financial stability at the Bank of England at the time, said yesterday in an interview on Bloomberg Television.

The VIX reached a record intraday high of 89.53 in October 2008 after Lehman Brothers declared bankruptcy and the credit crisis triggered a selloff for stocks. The index has averaged 20.34 over its 21-year history. It remains below this year’s peak of 29.40 after Japan’s earthquake and tsunami in March.


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The benchmark index for U.S. stock options, also known as Wall Street's Fear Index, posted its biggest weekly surge since May 2010 as lawmakers failed to agree on raising the debt ceiling and data showed that the U.S. economy almost came to a halt.The VIX, as the Chicago...
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2011-54-30
 

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