U.S. options prices soared the most in four years and volume jumped to a record 35 million contracts as investors scrambled to buy protection against greater stock-market losses as worsening economic data sent stocks to the largest losing streak since the bull market began.
The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 35 percent to 31.66 at 4:15 p.m. in New York, the highest close since July 2010 and the biggest jump since Feb. 27, 2007. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index, which fell 4.8 percent and had the biggest nine-day drop since the March 2009 start of the bull market.
“It’s just panic out there,” Andrew Keene, an independent options trader at the CBOE, said in a Bloomberg Television interview. “Everyone is moving into cash. People are selling everything.”
Today’s surge is the largest since the gauge soared 64 percent in February 2007, the most in its 21-year history -- a jump sparked by the biggest rout in four years that wiped out about $600 billion in market value in a day. The S&P 500 rallied 12 percent in the next seven months to peak at 1,565.15, then plunged 57 percent to a 12-year low in March 2009.
Global stocks had their biggest one-day rout since March 2009. A measure of global equities fell more than 10 percent from this year’s high in May, entering its first correction in more than a year, amid concern about a recession. The MSCI All-Country World Index of stocks in developed and emerging markets slid 4.1 percent to 311.60, falling 13 percent from its May 2 high.
“It’s fear,” Luke Rahbari, a VIX options trader at Stutland Equities LLC in Chicago, said in a telephone interview. “There’s definitely a lot of uncertainty in the market, whether you want to talk about European banks, European sovereign debt, slowing growth in the U.S.”
More than 35 million options on stocks, indexes and exchange-traded funds changed hands today on U.S. exchanges, according to Jim Binder, a spokesman for Chicago-based OCC, which settles all trades. Volume surpassed the prior peak of 30.8 million on May 6, 2010, when a 20-minute rout erased $862 billion from the value of U.S. shares before stocks rebounded, Binder said, citing a preliminary tally.
Investors are using options more than ever to guard against stock fluctuations, speculate on share-price moves or bet that volatility will rise or fall. Volume may rise about 8 percent to 4.2 billion this year for a ninth straight annual record, research firm Tabb Group LLC said in a report last month.
“People freaked out, and they should have,” Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options-market data and analytics, said in a telephone interview. “It’s impressive because it shows how useful options are for reacting to these kinds of moves and adjusting exposure.”
VIX futures volume rose to a one-day record 137,132 contracts, CBOE said in a statement. That was more than double the four-week average of 60,666 contracts as the gauge of options prices jumped the most since February 2007, according to data compiled by Bloomberg.
All VIX futures expiring this year rose above 24. August futures jumped 25 percent to 27.45, the highest level among all listed contracts, while September futures climbed 19 percent to 25.90 and January’s rose 8.1 percent to 25.35. The most-active VIX options were August 25 calls, followed by August 30 calls.
Europe’s benchmark gauge of stock-market volatility rose for a seventh day, its longest rising streak since October 2008. The VStoxx Index, which measures the cost of protecting against a decline in shares on the Euro Stoxx 50 Index, surged 17 percent today to 34.63 for its biggest jump since March 16.
The CBOE S&P 500 Implied Correlation Index jumped the most in its 20-month history, rising 15 percent to 72.51. The index uses January 2012 options prices to measure traders’ expectations for how much S&P 500 stocks will move in tandem during the next 30 days.
The S&P 500 moved in a 4.8 percent range between today’s intraday high and low, the widest range since a 20-minute rout on May 6, 2010, erased $862 billion from the value of U.S. shares before prices rebounded. Today’s swing is around triple the 1.63 percentage point average range in the past four weeks.
“People have had three years of being told by Washington and the news media that we are in a recovery,” Doreen Mogavero, chief executive officer of Mogavero, Lee & Co., said in a telephone interview from the New York Stock Exchange. “Now to find out that we are not only not recovering but that growth is slowing, things are reversing, there’s going to be a double dip, ten more years of austerity, it’s completely disconcerting to the average investor.”