A World Bank report, stating that the global economy will continue to slowdown for some more time, has propelled the Chicago Board Options Exchange Volatility Index by 11%, as equities plummeted, reported Bloomberg.
In Europe, VStoxx Index, the benchmark gauge of stock-market volatility, surged the most since November 2008. Volatility gauges for the UK, Germany and France closed at least 9% higher. The Dutch AEX volatility index increased 15% in Amsterdam.
Steve Claussen, Chief Investment Strategist at OptionsHouse (the Chicago-based online brokerage unit of PEAK6 Investments), said: “We had a glimmer of confidence, and now that’s been shaken with the World Bank downgrade. Investors were looking for more of a V-shaped recovery, and this throws cold water all over that.”
Options are financial instruments that convey the right, but not the obligation to engage in a future transaction at a set price and date. Investors use them to protect themselves against price fluctuations.
