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| Edited By: |Source: Reuters |Updated: Apr 14, 2018, 02:04 AM IST
The VIX, a favourite Wall Street gauge of investor anxiety, surged to it highest levels in more than a month on Thursday as US stocks tumbled on Obama administration proposals to stop US banks taking excessive risks.
The Chicago Board Options Exchange Volatility Index jumped 19.22 percent to 22.27, capping its biggest two-day run in 14 months as investors feared president Barack Obama's plans could hobble bank profits.
"Obama's announcement today from a derivatives perspective has thrown uncertainty into the mix," said Carl Mason, head of US equity derivatives strategy at BNP Paribas in New York.
"People don't know what form those rules will take for the banks. Uncertainty tends to breed volatility and increase expectations of more future volatility," Mason added.
Frederic Ruffy, an options strategist with WhatsTrading.com, said in comments on the website that the news "suggests greater regulatory scrutiny and probably a more difficult operating environment for the nation's biggest financial institutions."
The index soared past the key psychological level of 20 Thursday morning, in what could be the start of a push upward.
Many option investors braced for higher volatility and aggressively picked up February VIX call options that expire in just a few weeks as likely insurance against a severe pullback in US equities.
"We are seeing volatility escalate as option traders buy downside protection in index options," said Dan Deming, a VIX options trader at Stutland Equities.
The VIX is a 30-day risk forecast priced off of Standard & Poor's 500 index option prices. It often moves higher when stocks fall sharply as players bid up option premiums.
In volatility products, trading was heavy in VIX options, which are priced off of VIX futures.
About 2,13,000 calls and 38,000 puts traded, according to option analytics firm Trade Alert.
Most of the activity was in the front-month February VIX options with brisk call action in the 20, 22.50, 25, 27.50, 32.50 and 35 strikes.
The trades included a well-timed purchase of 25,000 February out-of-the-money 32.50 VIX calls at 35 cents per contract in morning action, Ruffy said.
In all, 37,870 contracts traded in that strike, Reuters data show.
