VIX Declines for a Seventh Straight Day Amid Global Stock Rally
March 25, 2011, 4:50 PM EDTBy Whitney Kisling and Jeff Kearns
March 25 (Bloomberg) -- The benchmark measure of U.S. stock options fell a seventh day in the longest streak since July, as the economy grew faster than previously reported and concern that the Japanese earthquake will curb growth eased.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, fell 0.5 percent to 17.91 at 4:15 p.m. New York time. Earlier today it slid as low as 17.07, a 42 percent drop since March 16, the most over seven days for the two-decade old index. The measure ended the day down 39 percent from the March high, the biggest decline in the same number of days since November 2008.
Stocks globally have rallied seven consecutive days, driving the MSCI All-Country World Index of shares in 45 nations up 5.1 percent. The VIX, which measures the cost of using options as protection from losses in the Standard & Poor’s 500 Index, had jumped to 29.40 after the magnitude-9 quake in Japan on March 11 and resulting tsunami and crisis at a nuclear plant 135 miles (217 kilometers) north of Tokyo. It has averaged 20.38 in its two-decade history.
“I’ve never seen such a change in tone,” said Christopher Rich, head options strategist at JonesTrading Institutional Services LLC in Chicago, who has been trading options for more than 30 years. “Last week, everything was about Japan and nuclear reactors, and this week it’s back to no fear. The market and the media perception of this is that it was important one week and not as much the next.”
Economic Growth
The S&P 500 rose 0.3 percent to 1,313.80 today after the Commerce Department said the world’s biggest economy grew at a 3.1 percent annual rate in the fourth quarter, more than the original 2.8 percent estimate.
The stock market’s decline from this year’s peak in February caused shorter-term risk gauges such as the VIX and options volume to jump even as prices for longer-term assets such as credit-default swaps and long-term S&P 500 puts saw smaller moves, according to a report today from New York-based Goldman Sachs Group Inc.
“This shows that investors believe recent events in the Middle East and Japan are unlikely to have a large and lasting negative effect on global growth,” wrote John Marshall and Krag “Buzz” Gregory, options strategists at Goldman Sachs. “In one month, the VIX rose from 15 to 29, but it only took 6 days for the VIX to recede to a close of 18 yesterday.”
--With assistance from Gaurav Panchal in London. Editors: Joanna Ossinger, Nick Baker
To contact the reporters on this story: Whitney Kisling in New York at wkisling@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net
To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net
