“Options (VIX) tied to gains in the benchmark gauge for American stock volatility reached the highest prices in six years last week, reflecting bets that the calm prevailing in equities for the last year won’t last.
A series of calls that appreciate in tandem with the Chicago Board Options Exchange Volatility Index climbed to the highest since May 2007 relative to puts, according to data compiled by Bloomberg. The increase reflects bets that swings measured by the VIX will widen this year after the Standard & Poor’s 500 Index rose 30 percent in 2013 without ever suffering a decline of 10 percent or more.
The intensifying standoff between Ukraine and Russia in the Crimea added to concerns facing global stock investors. U.S. equities completed a rebound last week from a selloff spurred by emerging-market turmoil that erased 5.8 percent between Jan. 15 and Feb. 3, the biggest retreat since June.
“Any time geopolitical risks escalate, especially in a major way — and we’d say this is a major escalation and a major increase in risk — you subject global stock markets to increased volatility,”Timothy Ghriskey, chief investment officer at New York-based Solaris Asset Management LLC, which manages about $1.5 billion in assets, said by phone yesterday. “The impact may end up being modest if the situation de-escalates, but right now there is no sign of that.”
The crisis in Ukraine deteriorated as Russian President Vladimir Putin won parliamentary backing to send troops into Russia’s southern neighbor. Ukraine, which put its forces on combat readiness, said over the weekend an invasion would be “an act of war,” and U.S. President Barack Obamawarned Russia not to intervene. The conflict follows a month in which global equities, bonds and commodities rose together for the first time since July and the S&P 500 rallied 4.3 percent to an all-time high after a 3.6 percent decline in January.
Futures on the S&P 500 slid 0.8 percent at 9:15 a.m. in London today. The HSI Volatility Index, which measures the cost of options on the Hong Kong equity gauge, jumped 10 percent, while the Nikkei Stock Average Volatility Index climbed 7. Europe’s VStoxx Index surged 17 percent, the most since January, to 19.56.
Calls predicting a 10 percent gain in the VIX cost 18.2 points more than puts betting on a 10 percent decrease as of Feb. 28, according to three-month options data compiled by Bloomberg. That’s the biggest gap since before the start of the financial crisis.