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VIX Surges for Second Day as Global Stocks Erase 2010 Advance

 

VIX Surges for Second Day as Global Stocks Erase 2010 Advance

By Jeff Kearns and Julie Cruz

May 5 (Bloomberg) — The benchmark index for U.S. stock options rose toward a three-month high as concern about Greece’s bailout wiped out the 2010 gain for the MSCI World Index and boosted demand for contracts to protect stocks.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, climbed 5.3 percent to 25.10 at 11:09 a.m. in New York. The index measures the cost of using options as insurance against losses in the Standard & Poor’s 500 Index, which lost 0.5 percent. VIX call options, used to bet that the index will rise, traded almost two-thirds of their full-day average volume in the first hour after U.S. markets opened. May 20 calls were most-active, followed by July 20 calls.

“People think the current crisis may have some legs,” Dominic Salvino, a specialist at Group One Trading, the primary market maker for VIX options, said in an interview from the CBOE floor. “It’s not just Greece.”

U.S. stocks fell, pushing the S&P 500 to its biggest two- day drop since February before paring losses, as concern grew that Europe’s government debt crisis will spread beyond Greece. Europe stocks sank for a second day, extending a two-month low.

The VStoxx Index, which measures options on the Euro Stoxx 50 Index, rose 3 percent to 34.14, the highest in 10 months.

“There continues to be a clear and present danger that the tensions could escalate into a European Monetary Union credibility crisis,” Tammo Greetfeld, a Munich-based equity strategist at UniCredit Research, wrote in a report today.

Portugal’s PSI-20 Index plunged as much as 3.3 percent today as Moody’s Investors Service placed the country’s ratings on review for possible downgrade. European Central Bank council member Axel Weber said there is a threat of “grave contagion effects” from the Greek fiscal crisis.

–Editor: Joanna Ossinger

To contact the reporters on this story: Jeff Kearns in New York at [email protected] Julie Cruz in Frankfurt at [email protected]

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