Volatility Gauge Rises on Wachovia's Loss; Allegheny Calls Jump

The benchmark for U.S. stock options jumped to the highest since the Federal Reserve cut the discount loan rate on Aug. 17 after Wachovia Corp. today said mortgage losses are increasing and Qualcomm Inc. trimmed its profit forecast.

The Chicago Board Options Exchange Volatility Index, or VIX, climbed 8.9 percent to 28.50. The index, known as the market's ``fear gauge'' because it tends to increase as stocks fall, has risen 77 percent in the last month as banks and brokerages announced losses tied to subprime loans.

``People are buying the hell out of the VIX because they're all spooked,'' said Al Greenberg, head CBOE floor trader at BNY Convergex in Chicago. ``Between higher oil prices and getting hit with more bad news every day in the financials they're preparing for the worst.''

Investors typically buy VIX call options to protect against stock-market losses. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect smaller share-price swings in the next 30 days.

Earlier, the VIX rose as much as 10 percent to 28.84. The Standard & Poor's 500 Index fell 1.4 percent to a two-month low of 1,453.70

``The market's down, there's a lot of risk and there was more bad news this morning, so when fear increases the VIX rises,'' said Joe Kinahan, chief derivatives strategist at Investools Inc.'s thinkorswim brokerage unit in Chicago. ``Thirty is a very bearish reading and we're up to 28, so this bears watching over the next few days.''
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