By Doris Frankel
CHICAGO, April 20 (Reuters) - The sharp sell-off in U.S. stocks sent the Chicago Board Options Exchange Volatility Index up more than 15 percent on Monday as investors, worried over the health of the financial sector, scrambled for protection to insure their stock portfolios.
The VIX, often called Wall Street's fear gauge, vaulted to 39.18, up 15.4 percent, its largest daily percentage gain since Jan. 20.
On Friday the VIX had ended at its lowest level since late September, at 33.94.
'The VIX is up on investors' increased concerns over the state of the financial sector, resulting in raised option premiums,' said Andrew Wilkinson, senior market analyst at Connecticut-based Interactive Brokers Group.
'Option premiums increased, Many option bid/ask spreads on individual stocks, particularly the financials, widened out, as volatility increased and investors sought protection in these classes,' said Al Greenberg, head options trader at broker-dealer BNY ConvergEX Group in Chicago.
Bank stocks, which fell after a surge in troubled loans at Bank of America Corp overshadowed its better-than-expected earnings, led the march lower in the broad market.
Shares of Citigroup Inc fell 19.45 percent to $2.94 after Goldman Sachs analysts said credit losses at the bank continued to grow at a rapid rate and the Select Sector SPDR Financial exchange-traded fund was down 10.89 percent to $9.90.
Investors are increasing their hedges following a steep drop in the XLF as well as notable declines in the housing and consumer discretionary sectors, said Scott Fullman, director of derivative Investment Strategy at New York-based broker-dealer WJB Capital Group.
The VIX, calculated from Standard & Poor's 500 index options, tracks the market's expectations of future volatility over the next 30-day period. It often moves inversely to the S&P benchmark and goes up as option premiums are raised.
The VIX is heading back toward the 20-day moving average of 40.02, Fullman said.
In volatility derivatives, May VIX futures traded slightly higher than the spot VIX at 39.50. June futures were at 38.95 and July stood at 38.75 compared to last week when all the futures contracts were at a premium to the fear gauge, suggesting a return of volatility.
Trading in VIX options, which are priced off VIX futures, was active and premiums were inflated across the board for May as the stock market decline pushed volatility higher.
Investors seemed to be buying the 40, 42.50 and 45 VIX strike calls and selling the higher strikes at 50 and 55 in spreads, all in contracts expiring next month,' said Jamie Tyrrell, an options trader at market maker Group One Trading LP.
'They are seeing a possibility of another rise in the VIX near term,' he said.
There has also been notable volume in the May VIX puts at strike prices from 30 up to the 35 strike with some investors buying the 35 puts, he said.
(Editing by Leslie Adler( Keywords: VOLATILITY VIX/UPDATE 1 (doris.frankel@thomsonreuters.com; +1 312 408 8752; Reuters Messaging: doris.frankel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
CHICAGO, April 20 (Reuters) - The sharp sell-off in U.S. stocks sent the Chicago Board Options Exchange Volatility Index up more than 15 percent on Monday as investors, worried over the health of the financial sector, scrambled for protection to insure their stock portfolios.
The VIX, often called Wall Street's fear gauge, vaulted to 39.18, up 15.4 percent, its largest daily percentage gain since Jan. 20.
On Friday the VIX had ended at its lowest level since late September, at 33.94.
'The VIX is up on investors' increased concerns over the state of the financial sector, resulting in raised option premiums,' said Andrew Wilkinson, senior market analyst at Connecticut-based Interactive Brokers Group.
'Option premiums increased, Many option bid/ask spreads on individual stocks, particularly the financials, widened out, as volatility increased and investors sought protection in these classes,' said Al Greenberg, head options trader at broker-dealer BNY ConvergEX Group in Chicago.
Bank stocks, which fell after a surge in troubled loans at Bank of America Corp overshadowed its better-than-expected earnings, led the march lower in the broad market.
Shares of Citigroup Inc fell 19.45 percent to $2.94 after Goldman Sachs analysts said credit losses at the bank continued to grow at a rapid rate and the Select Sector SPDR Financial exchange-traded fund was down 10.89 percent to $9.90.
Investors are increasing their hedges following a steep drop in the XLF as well as notable declines in the housing and consumer discretionary sectors, said Scott Fullman, director of derivative Investment Strategy at New York-based broker-dealer WJB Capital Group.
The VIX, calculated from Standard & Poor's 500 index options, tracks the market's expectations of future volatility over the next 30-day period. It often moves inversely to the S&P benchmark and goes up as option premiums are raised.
The VIX is heading back toward the 20-day moving average of 40.02, Fullman said.
In volatility derivatives, May VIX futures traded slightly higher than the spot VIX at 39.50. June futures were at 38.95 and July stood at 38.75 compared to last week when all the futures contracts were at a premium to the fear gauge, suggesting a return of volatility.
Trading in VIX options, which are priced off VIX futures, was active and premiums were inflated across the board for May as the stock market decline pushed volatility higher.
Investors seemed to be buying the 40, 42.50 and 45 VIX strike calls and selling the higher strikes at 50 and 55 in spreads, all in contracts expiring next month,' said Jamie Tyrrell, an options trader at market maker Group One Trading LP.
'They are seeing a possibility of another rise in the VIX near term,' he said.
There has also been notable volume in the May VIX puts at strike prices from 30 up to the 35 strike with some investors buying the 35 puts, he said.
(Editing by Leslie Adler( Keywords: VOLATILITY VIX/UPDATE 1 (doris.frankel@thomsonreuters.com; +1 312 408 8752; Reuters Messaging: doris.frankel.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.