New Year?s U.S. Stocks Slump Seen Overdone in VIX Futures
– Bloomberg News
U.S. equities are starting the year with the worst losses since 2008. Trading in a corner of the market where speculators bet on future volatility suggests the pain will prove temporary.
The Standard & Poor?s 500 Index has plunged 4.2 percent in five days and is down 2.7 percent since the end of 2014, the biggest retreat since it fell 3.9 percent in the financial crisis. Prices for contracts tied to levels of expected stock turbulence in months through September show traders expect this month?s swings to calm down as the year progresses.
The S&P 500 has fallen more than 4 percent from a record in two separate retreats in the past month, the closest back-to-back pullbacks of at least that size in three years. While options traders are raising hedges against near-term declines, they?re reluctant to spend more on future months amid a bull market that has endured 30 declines of 4 percent or more.
?Once again, we?re staring into a mountain of issues, like how the economy will weather oil prices,? Andrew Wilkinson, chief market analyst at Interactive Brokers LLC in Greenwich, Connecticut, said by phone. ?At this point fear is somewhat heightened, but we know it won?t last.?
Stocks tracked by the S&P 500 fell 0.9 percent yesterday to 2,002.61, extending the longest stretch of losses in 13 months, as small-cap and energy shares slid after oil sank below $48 a barrel.
The Chicago Board Options Exchange Volatility Index (VIX), a measure of demand for options on the S&P 500, rose 6 percent to 21.12 for the sixth advance in seven days. At that level, the gauge is higher than all nine of its monthly futures contracts with expiration dates ranging from Jan. 21 to Sept. 16.
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