VIX Jumps Most in Nine Months on Libya Unrest - Bloomberg

Investors bid up the price of options insurance against losses in the Standard & Poor’s 500 Index by the most since May amid escalating violence in protests against Libyan leader Muammar Qaddafi.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 27 percent to a 12-week high of 20.80. The S&P 500, the benchmark measure of U.S. stocks, dropped 2.1 percent for the biggest slump since August. Oil futures surged to the highest level in more than two years, jumping 8.6 percent from the Feb. 18 close to $93.57 a barrel in New York.

Options prices had declined after the S&P 500’s 31 percent surge between July 2 and Feb. 18 helped sap demand for protection from losses. The rally occurred as price swings narrowed, also driving down options. When the VIX dropped to 15.45 in December, it sank to a level last seen in July 2007, a month before BNP Paribas SA barred withdrawals from funds that owned subprime loans and intensified the financial crisis.

“People definitely panicked a bit,” said Jeremy Wien, head of VIX options trading at Peak6 Capital Management LLC in Chicago. “There’s a little risk premium in the market right now. I don’t think that’s unwarranted. We’re toward the top of what I think is the reasonable range. VIX in the 16-to-21 range makes sense.”

The S&P 500 surged 28 percent between July 2 and Feb. 17 and an options-market indicator known as 30-day realized volatility fell below 10 on Feb. 15, a combination last seen in 1971, according to data compiled by Bloomberg. Price swings are a key driver of options prices. more ...