VIX Surges 31% in Biggest Jump Since 2008 on Greece Downgrade

By Jeff Kearns

April 27 (Bloomberg) -- The Chicago Board Options Exchange Volatility Index jumped the most since October 2008 after Standard & Poor’s cut the credit ratings of Greece and Portugal, prompting speculation that European deficits will spur a global financial crisis.

The VIX, as the benchmark index for U.S. options is known, surged 31 percent to 22.81, the highest level since Feb. 11. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index, which tumbled 2.3 percent. Europe’s VStoxx Index, a gauge of options on the Dow Jones Euro Stoxx 50 Index, climbed 17 percent to close at 28.56.

“It’s the sovereign debt issues in Europe and whether or not it’s going to implode,” Dominic Salvino, a specialist at Group One Trading, the primary market maker for VIX options, said in an interview from the CBOE floor. “People are looking for near-term protection.”

Greece’s credit rating was cut three steps to junk by Standard and Poor’s, the first time that’s happened to a euro member since the currency started, as contagion from the nation’s debt crisis spread through the bloc. S&P also lowered its rating on Portugal by two steps to A- from A+.

“It’s a very big concern,” Jon Corpina, senior managing partner at Meridian Equity Partners Inc. on the New York Stock Exchange floor, said in a Bloomberg Television interview. “It starts off with Greece and everyone looks at the map to see where else it can spread.”

VIX futures also advanced. June contracts rose 6.2 percent to 22.25, while August futures rose 3.9 percent to 24.15. The index hasn’t closed above 24 since February 10.