Wall Street ‘fear gauge’ option volume hits 4-year high as bank stocks sell off

NEW YORK, March 10 (Reuters) – Wall Street’s most-watched Market Anxiety Index jumped on Friday and options volume on the index hit a nearly 4-year high amid a growing crisis at SVB Financial (SIVB.O) weighed on the shares.

The Cboe Volatility Index (.VIX), an options-based indicator dubbed Wall Street’s “fear gauge”, jumped 6.36 points to 28.97, before closing up 2.19 points at 24.8.

VIX options, used by traders to bet on whether stock market volatility will rise or fall in the weeks and months ahead, changed hands in high volume, with some 2.36 million contracts traded. That was the most since the start of May 7, 2019, when escalating trade tensions between the United States and China spooked investors.

Much of Friday’s volume was tied to traders booking profits and adjusting their positions to account for recent market moves, the data showed.

Betting on the rise of the VIX has not been as profitable as many traders had hoped over the past year, despite a sharp decline in the stock market. Some investors say the reason for this is that, although volatility was above normal, the market decline was spread over a period of weeks and months, rather than a sudden surge of selling pressure.

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This gradual recovery in volatility kept the VIX below 40, a level associated with great fear in the market.

On Friday, traders were quick to take advantage of the rare surge in volatility.

“The VIX has certainly not, over the past year, performed the way people thought it would,” said Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald. “Finally, on a day like this, people who have VIX positions roll because they finally made money with the VIX product.”

Rolling involves closing an existing position and realizing gains or losses, while replacing closed contracts with new ones.

Friday’s rise in the volatility index came as major Wall Street stock indexes fell on Friday as investors worried about the health of U.S. banks after regulators had to shut down a top lender in the technology sector.

Reporting by Saqib Iqbal Ahmed; Additional reporting by Laura Matthews; Editing by Ira Iosebashvili and David Gregorio

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