Bloomberg News

VIX Jumps Most Since November as S&P 500 Sinks on Europe Concern

July 23, 2012

The benchmark gauge for U.S. options prices rose the most in eight months as concern that the European debt crisis is worsening spurred losses in equities.

The Chicago Board Options Exchange Volatility Index (VIX), or VIX, surged 17 percent to 19.01 at 12:32 p.m. in New York, poised for its biggest gain since Nov. 9. The Standard & Poor’s 500 Index, a benchmark measure for U.S. equities, slid 1.4 percent to 1,343.15. In Europe, the VStoxx Index (V2X), a measure of Euro Stoxx 50 Index option prices, rose 16 percent to 28.08 and posted the biggest two-day gain in almost nine months, as the equity gauge tumbled 2.6 percent.

“Investors are coming to the realization that things are slowing down here, and it’s not getting better abroad,” Terry L. Morris, who helps oversee manages about $2.4 billion at Wyomissing, Pennsylvania-based National Penn Investors Trust Co., said in a telephone interview. “Complacency has gotten pretty high. The combination of Greece and Spain, and the China slowdown put investors in a more bearish mode.”

Equities joined a global slump today before the arrival in Athens tomorrow of Greece’s troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund. In Spain, Catalonia joined a list of regions that may tap aid from the central government. Spain’s 10-year yields surged above 7.5 percent for the first time.

China Slowdown

Song Guoqing, an academic member of the People’s Bank of China monetary policy committee, predicted the nation’s expansion may cool to 7.4 percent this quarter. He also warned that a decline in producer prices in tandem with consumer inflation may hurt investment returns of industrial companies.

The VIX averaged 17.1 this month through July 20, compared with the mean of 20.1 since its inception in 1990 and 19.1 during the first half of this year, according to data compiled by Bloomberg.

“Volatility had been so sucked out of the market,” Chip Hendon, who helps manage $14 billion including options at Huntington Asset Advisors in Cincinnati, said in a phone interview. “With the setup with the VIX being as low as it’s been, you could see a volatile market, you could see the VIX continue to rise.”

In Asia, the HSI Volatility Index, which measures the expected volatility of the Hang Seng Index, rose 18 percent, the most since May, to 22.19. The Nikkei Volatility Index gained 21 percent to 21.37.

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Julia Leite in New York at jleite3@bloomberg.net

To contact the editor responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net


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