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Archive for the ‘Stock Options’ Category

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 jkearns3@bloomberg.net. Julie Cruz in Frankfurt at jcruz6@bloomberg.net

We Got A Wee Problem Here

Posted by Karl Denninger

Consumer sentiment is not what the market claims it should be…

According to a Reuters report, the reading on current economic conditions fell to 80.7 in April from 82.4 in March. The consumer expectations reading fell to 62.3 from 67.9, according to Reuters. Also according to Reuters, the one-year inflation expectation index rose to 2.9% from 2.7%

The latter is a problem, as it is well over The Fed’s desired 1-2% range.

Nor is the expectations number from Reuters good.

The sentiment index fell to 69.5, which was wildly off expectations of 75 – that is, the market expected improvement and got serious deterioration instead.

But the barkers on CNBS continue to pump stocks, and suck in retail buyers – especially the crazy speculators in the options market:

I’m compelled to take the other side of this bet.

I managed to catch up with my old friend, Santa Claus, the other day, before he took off on his global gift giving rounds. I have had a rocky relationship with old Saint Nick over the years, usually finding coal or potatoes in my stocking, as one who lives a feckless life might expect. But one year I found a Mercedes S600 V-12 under the tree! I ended up regifting it because I didn’t like the cup holders, but hey, it was a nice thought! Things are not good at the North Pole. The cost of the software upgrade needed to switch from children’s handwritten letters to email has been a killer. And what the hell is Twitter? The First National Bank of the North Pole won’t let him roll over his debt because snow appraisals aren’t coming in like they used to. Labor costs are rocketing. Elves used to work for a few pieces of candy cane a day, but no more. Now they want black snowmobiles with chrome wheels, big screen TV’s, and Blue Ray HD players. There are rumors of a strike over health care costs, which are bleeding him snow white. The Amalgamated Confederation of Elves must be the only union that gets Viagra with their benefits, besides the United Auto Workers. And now they want free mistletoe, to boot! He’s going to have to skip the unfortunate children of Afghanistan and Iraq once again because Obama’s budget cuts won’t allow the US Air Force to provide needed fighter cover. The price of reindeer food is going through the roof, thanks to Chinese hoarding, and Donner and Blitzen are down with the swine flu. Rising costs, lower revenues, and an unruly workforce are not a good business model. Since the government forced that TARP money down his throat, the green eye shades from the Treasury have been camping out in accounting. To top it all, compliance is telling him he’s being investigated for backdated stock options in Santa Claus Inc. All this while the debate rages on over whether he even exists. Tell that to the SEC! Coming on top of all the shareholder carping about his ten figure compensation package, and unlimited use of the corporate sleigh, he needs this like a hole in his head! To be honest, he would have retired by now if he had not invested so much of his savings with Bernie Madoff. Sure, being Santa Claus is a bitch, but somebody’s got to do it.