Tags: VIX | weekly | Gain | fear

'Fear Index' Heads for Biggest Weekly Gain Since May 2010 on Debt, GDP

Friday, 29 Jul 2011 03:30 PM

The benchmark index for U.S. stock options headed for its biggest weekly surge since May 2010 as lawmakers failed to agree to raise 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 3.9 percent to 24.68 as of 2 p.m. in New York after rising to a four-month intraday high of 25.94. The gauge of options to protect against declines in the Standard & Poor’s 500 Index is on pace for a 41 percent gain this week. If it rises today, that will be the fifth straight daily advance, the longest streak in 12 weeks. It is commonly known as the "fear index."

“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 pared losses as lawmakers indicated they were closer to 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 0.2 percent after falling as much as 1.4 percent earlier. 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 1.1 percent to 21.12. September contracts slumped 1.6 percent to 21.35. All VIX futures expiring this year traded below the spot price of the volatility gauge.

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 headed for its biggest weekly surge since May 2010 as lawmakers failed to agree to raise 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...
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2011-30-29
Friday, 29 Jul 2011 03:30 PM
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