Aug. 16 (Bloomberg) -- The benchmark for U.S. stock volatility rose to the highest since March 2003 after the Dow Jones Industrial Average plunged 343 points and then closed almost unchanged.

The Chicago Board Options Exchange Volatility Index, called the VIX, gained 0.5 percent to 30.83 as of 4 p.m. in New York. Earlier, it reached 37.50, the highest since U.S. stocks began a bull market in October 2002.

Shares plunged today as the global credit crisis shook equity markets around the world. The market recovered by the close amid speculation Bear Stearns Cos. may get an infusion of capital and the Federal Reserve might reduce interest rates.

Recent market volatility is ``like nothing I've ever seen,'' said Barton Biggs, 74, who runs the $1.5 billion Traxis Partners LLC hedge fund in New York and was formerly a strategist at Morgan Stanley.

Higher readings in the so-called VIX, derived from prices paid for Standard & Poor's 500 Index options, indicate traders expect bigger share-price swings in the next 30 days. The gauge, known as a gauge of investor fear, tends to increase as stocks fall. The VIX has more than doubled since the S&P 500 advanced to a record on July 19.

``There's panic in the marketplace,'' said Group One Trading LP's Dominic Salvino, who trades VIX options in Chicago.

`Amazing'

The VIX has come within 2 points of 50 on only three occasions in the past decade. The first, on Oct. 8, 1998, came as losses mounted from Russia defaulting on its debt. It reached another peak 10 days after the terrorist attacks in September 2001, and again surged in July 2002 as fallout from Enron Corp.'s collapse drove down shares of its main lenders and former rivals.

The price of today's most-active option linked to the VIX, August 30 calls, rose 80 percent to $3.60. Trading volume for the contracts, which expire tomorrow, was 66,362, the most since they were created in November. The price of August 40 calls jumped more than fourfold to 85 cents.

``It's just amazing,'' said Jack Bouroudjian, chief investment strategist at Chicago-based Brewer Investment Group, which oversees about $300 million, including options and futures. ``Traders love volatility, but extreme volatility scares everybody. People are starting to price in extreme conditions and when you see that happen you start to see these extreme moves.''

Calls give the right to buy a security at a certain price by a given date, while puts convey the right to sell.

Record Trading Volume

When the S&P 500 reached a record high on July 19, the VIX finished the day at 15.23. While the S&P 500 has gained four straight years, the VIX has fallen every year since 2002. In November, the index fell below 10 for the first time since 1994 and in December fell to a 13-year low of 9.39.

Implied volatility on the SPDR Trust, an exchange-traded fund that tracks the performance of the S&P 500, rose to 29.73 percent. That's the highest since options on the so-called Spiders first traded in January 2005.

CBOE trading volume rose to a record 9.3 million option contracts, according to a preliminary statement sent by the exchange. The previous peak of 6.9 million was reached July 26.

The exchange also said it reached record volume in equity and index volume. Equity options volume rose to 4 million, eclipsing the previous record of 3.1 million set July 20. Index options volume climbed to 5.3 million, eclipsing the previous record of 4 million from March 2006. Options volume on the S&P 500 and Russell 2000 Index rose to records, CBOE said.

To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.

Last Updated: August 16, 2007 17:55 EDT