VIX Options Index Advances to Record Above 60 on Credit Freeze

October 9, 2008 by · Leave a Comment
Filed under: Stock Market News 

Just another sign that the market is in full panic mode and risk is extremely high in most asset classes.  When we have vice-president’s of brokerages talking about “uncharted territory” you know the current valuation models for many asset classes are off.  We are living in interesting times.

News Bit:

The benchmark index for U.S. stock options surpassed 60 for the first time after the freeze in credit markets drove the Dow Jones Industrial Average to a five- year low below 9,000.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 6.1 percent to 61.02 at 3:37 p.m. in New York. Its history stretches back to 1990. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index, which lost 5.4 percent. The Dow got as low as 8,806.58.

“It’s flashing a signal that equities are very dangerous right now,” said John Farrall, director of derivatives strategies at National City Private Client Group, which oversees $34 billion in Cleveland, Ohio. “We’ll need to see a sustained market rally or one that swings 1 percent or less for a couple days before you can expect the VIX to come back in to the 40s.”

The cost of borrowing in dollars for three months in London soared to the highest level this year as coordinated interest- rate reductions worldwide failed to revive lending among banks. The London interbank offered rate, or Libor, for three-month loans rose to 4.75 percent today, the highest since Dec. 28.

The S&P 500 has retreated seven straight days, the longest losing streak since 1996, with declines exceeding 1 percent on all but one day. Concern bank writedowns totaling almost $600 billion will spur a global recession sent the benchmark for U.S. equities down 40 percent since its record exactly one year ago. The VIX closed yesterday at a record 57.53.

Click Here to Continue Reading

Speak Your Mind

Tell us what you're thinking...
and oh, if you want a pic to show with your comment, go get a gravatar!