VIX posts longest streak of gains since 2003 on economic concern

April 9, 2012 10:08 AM

April 9 (Bloomberg) -- The benchmark gauge for U.S. options prices rose for a seventh day, the longest streak since August 2003, as concern about employment growth and earnings spurred investors to guard against losses in stocks.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose 8.6 percent to 18.14 at 2:19 p.m. in New York, its highest level in a month. The VIX measures the cost of options on the Standard & Poor’s 500 Index, which has fallen four straight days, retreating 0.9 percent today to 1,385.47.

“We’re in a corrective phase and people are protecting themselves,” Bob Baur, chief global economist at Principal Global Investors, which oversees about $242 billion, said today in a phone interview. “The economic data is softening and there’s a lot of risk in the market.”

Prices to insure equities increased after the Labor Department said on April 6 that employers added 120,000 jobs, the fewest in five months and less than the median economist forecast of 205,000 in a Bloomberg survey. The VIX rose and equities slumped last week after the Federal Reserve signaled it will refrain from further monetary stimulus and concern grew about Europe’s debt crisis.

Spain is in “extreme difficulty,” Prime Minister Mariano Rajoy said April 4, raising the possibility of a bailout. The fourth-biggest economy in the region sold 2.59 billion euros ($3.4 billion) of bonds at an auction last week, near the minimum, and the spread between yields on its 10-year debt and German bonds widened to a level last seen Dec. 12.

Europe, Earnings

“There’s stress in Europe, concerns about the U.S. economy and heavy newsflow coming out in the next weeks in terms of earnings,” Ralph Edwards, director of derivatives strategy at Investment Technology Group Inc. in New York, said in a phone interview. “All of that is pushing the VIX back up.”

The VIX fell a record 64 percent in the last two quarters as improvements in U.S. payrolls and consumer confidence pushed the S&P 500 to its biggest first-quarter rally since 1998, advancing 12 percent in 2012 through March 30.

Alcoa Inc. is scheduled to disclose first-quarter results tomorrow, the first Dow Jones Industrial Average company to report. The New York-based aluminum producer will report a loss of 4 cents a share, according to the average of 19 analyst estimates in a Bloomberg survey.

VIX futures expiring this month rose 4.1 percent to 19.20. May contracts rose 1.7 percent to 20.80. The volatility index and gauge of expected S&P 500 price swings over the next 30 days has averaged 20.54 over its 22-year history. The VIX averaged 18.04 from January through April 2011, falling to 14.62 on April 28, a day before the S&P 500 peaked and began a 19 percent decline that lasted until Oct. 3.

Bloomberg News

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