The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose a third day, adding 9.6 percent to 75.92 at 12:50 p.m. in New York after climbing as high as 81.17. The index measures the cost of using options as insurance against declines in the Standard & Poor's 500 Index, which fell 0.6 percent. The stock benchmark earlier slid as much as 4.6 percent, extending a 9 percent plunge yesterday.
``There's no historical context for the VIX at 80,'' said Dean Curnutt, president of Macro Risk Advisors LLC, a New York- based firm that advises institutional investors on derivatives strategy. ``Investors are scrambling for protection and it's driving up the price of options.''" I'll tell you this, on the 6th of October, the VIX went 1-standard deviation away from its 60-day mean, and it has stayed 1-standard deviation away from the mean since then. Today, it traded above 80, and it will close just under 70. This is out-of-control volatility. Are investors still nervous? I say yes. Has confidence re-emerged from the TARP-related programs? That, my friends, has yet to be determined.
One thing is for sure: the market should have already priced in the slumping economic data. So this excess volatility must be centered on the uncertainty created by unprecedented government interventions taking place over the last few weeks.