June 29 (Bloomberg) -- The benchmark index for U.S. stock options returned to 
its level before the September collapse of Lehman Brothers Holdings Inc., as an 
almost four-month rally in equities and signs the economy is improving helped 
calm concern spurred by the worst recession in 51 years. 
 The VIX, as the Chicago Board Options Exchange Volatility Index is known, lost 
2.2 percent to 25.35 at 4:14 p.m. New York time, putting it below the Sept. 12 
close of 25.66. It measures the cost of using options as insurance against 
declines in the Standard & Poor’s 500 Index, which added 0.9 percent. 
 “People are a lot less worried,” Dominic Salvino, a specialist at Group One 
Trading, the primary market maker for VIX options, said in an interview from 
the CBOE floor. “Insurance is getting cheaper, and that’s what the options 
market represents at this level.” 
 The U.S. government and Federal Reserve have pledged $12.8 trillion to help 
spur economic growth and end the worst financial crisis since the Great 
Depression. The Conference Board’s measure of leading economic indicators 
increased in April for the first time since June 2008 and rose again last 
month. Analysts covering S&P 500 companies boosted 2009 profit estimates for 
the first time this year in May as economists predicted the U.S. economy will 
start to expand next quarter, weekly data compiled by Bloomberg show. 
 Lehman, once the fourth-largest U.S. securities firm, filed for the biggest 
bankruptcy in U.S. history on Sept. 15, prompting a freeze in credit markets. 
The VIX surged 24 percent to 31.70 that day. 
 ‘Fear Gauge’ 
 Before today, the VIX averaged 20.18 in its history stretching back to the 
start of 1990. The index peaked at 80.86 in November and dipped below 30 in May 
for the first time in eight months. It reached an intraday record of 89.53 on 
Oct. 24. 
 The volatility benchmark, known as Wall Street’s “fear gauge” because it 
almost always increases as stocks fall, reflects expectations for price swings 
for the next 30 days and is calculated from S&P 500 options that are one or two 
months from expiration. 
 In February, Congress approved a $787 billion economic stimulus plan to help 
jump start growth and end the longest recession since World War II. 
 Federal Reserve Chairman Ben S. Bernanke has made unprecedented use of the 
central bank’s powers as the lender of last resort. He kept banks liquid by 
accepting bonds they can’t trade as collateral for Treasuries and bailed out 
the nation’s biggest insurer, American International Group Inc. 
 ‘Doomsday Scenario’ 
 “Fear of the doomsday scenario has definitely subsided,” said Jeremy Wien, a 
VIX options trader at Societe Generale SA in New York. “Given the steps the 
government has taken and the decrease in huge market swings, it’s entirely 
reasonable for the VIX to drop to these levels and possibly even lower.” 
 Fewer investors expect the volatility gauge to surpass 40 before sinking below 
20, according to a survey by Macro Risk Advisors LLC, a brokerage that 
specializes in equity options. 
 Fifty-two percent of the 100 clients surveyed on June 26 said they expect the 
VIX to climb to 40 before it falls to 20, Dean Curnutt, president of the New 
York-based firm, wrote today in a note to clients. That’s down from 74 percent 
in survey conducted May 28, when the VIX fell 2.1 percent to 31.67. 
 Disaster Averted 
 “This is a sign that investors are becoming exhausted of trying to bet against 
the market, or further, the government,” wrote Curnutt, the former head of 
institutional sales for equity derivatives at Bank of America Corp. “The 
coordinated global action has averted disaster in the near-term.” 
 The S&P 500’s swings were the biggest in the benchmark’s 80-year history last 
year as it plunged 38 percent, the most since 1937. There were 18 moves of more 
than 5 percent after Sept. 29. That was more than half of the 35 swings of that 
size that have occurred from 1955 through 2008, according Howard Silverblatt, 
the senior index analyst at S&P in New York. 
 Options give the right but not the obligation to buy or sell a security at a 
set price and date. Investors use them to guard against fluctuations in the 
price of securities they own, speculate on share-price moves or bet that 
volatility, or stock swings, will increase or decrease. 
 To contact the reporter on this story: Jeff Kearns in New York at 
jkear...@bloomberg.net . 

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