Bloomberg News

VIX, Europe Volatility Sink to Lowest Since August on Debt Plans

October 27, 2011

Oct. 27 (Bloomberg) -- The gauges for U.S. and European stock options plunged to their lowest levels in almost three months after euro-region leaders agreed to expand a bailout fund and American economic growth accelerated in the third quarter.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, slid 12 percent to 26.15, the lowest since Aug. 4, at 10:09 a.m. in New York after earlier falling as much as 17 percent. Europe’s VStoxx Index, which measures the cost of Euro Stoxx 50 Index options, sank 16 percent to 31.86 after plunging as much as 19 percent, the most intraday since May 2010.

Volatility gauges fell globally as European Union leaders agreed to expand their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) and persuaded bondholders to take 50 percent losses on Greek debt. A report showed the U.S. economy grew in the third quarter at a 2.5 percent rate, the fastest pace in a year, as increases in consumer spending and business investment helped support a recovery on the brink of faltering.

“The market feels that this has reduced the overall risk levels,” Dominic Salvino, a specialist on the CBOE floor for Group One Trading, the primary market maker for options on the index, said in a telephone interview, referring to the European plan. “Assuming that that deal doesn’t blow up, they feel that the market is going to be a little less crazy going forward.”

Asian volatility measures fell as the MSCI AC Asia Pacific Index rallied 3.1 percent. Volatility for South Korea’s KOSPI 200 Index slid 11 percent, the most since Aug. 29, while Hong Kong’s Hang Seng Volatility Index lost 6.9 percent.

The VIX’s 21-year average is 20.50, while the average for the VStoxx is 26.25 since January 1999, Bloomberg data show.

--Editors: Joanna Ossinger, Michael P. Regan

To contact the reporter on this story: Cecile Vannucci in Amsterdam at cvannucci1@bloomberg.net.

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Andrew Rummer at arummer@bloomberg.net


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