The Chicago Board Options Exchange Volatility Index or the VIX, Wall Street's main barometer of investor fear, shot up on Friday as many anxious players sought options to guard their portfolios.
The VIX jumped 14.11 percent to 29.20, its highest level since March 20, when the indicator opened at 29.84.
The VIX measures anticipated stock market volatility embedded in Standard & Poor's 500 Index options and typically runs inversely to the S&P benchmark.
It rises when investors are inclined to bid up options to manage their stock market risk.
"Investors are scrambling to protect portfolios amid a two-day surge in crude oil prices and ongoing problems in the financials," said strategist Frederic Ruffy at Web information site WhatsTrading.com.
U.S. stocks plunged on Friday after U.S. Treasury Secretary Henry Paulson offered no hint of a government bailout for home financing providers Fannie Mae and Freddie Mac while record oil prices added to worries of slowing economic growth.
"People are concerned over what is going to happen to Freddie Mac and Fannie Mae," said Herb Kurlan, chief executive of Vtrader Pro, an online trading firm in San Francisco.
"There was some hope in the market that the government was going to help restructure these entities, but recent remarks by Treasury Secretary Paulson indicate that a government-led bailout is unlikely," Kurlan said.
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Paulson, responding to reports that a government takeover was under consideration, said, "Our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission."
Vtrader Pro's Kurlan said that "clearly people are running to puts to protect their holdings and that is causing the VIX to increase substantially today."
Fear Into The Stratosphere
Investors are bidding up risk premiums as the market attempts to digest continued concerns about the financial sector and a jump in oil prices, said Scott Fullman, director of derivative investment strategy at broker-dealer WJB Capital Group.
U.S. crude oil futures jumped to a record price above $147 a barrel as fear of supply disruptions in Iran, Nigeria and Brazil helped drive oil prices higher.
On the options front, VIX calls have been actively purchased with players anticipating an increase in volatility as the financial crisis worsens, said Jon Najarian, a founder of Web information site optionmonster.com.
VIX options are priced off of VIX futures. Most notable have been the July $27.50 and $30 VIX calls, Najarian said.
According to option analytics firm Trade Alert, roughly 78,000 VIX calls and 15,000 VIX puts crossed the tape during the first half of the session.
In the S&P 500, about 376,000 puts, which give the right to sell the index at a predetermined level and time, and 228,000 calls, which give the right to buy the index at a stated level within a specified time period, changed hands regulator said on Friday.
A number of the six parties had previously applied to the OFT for leniency and the total penalties the groups agreed to pay, if all leniency and early resolution discounts are given, is 132.2 million pounds, rather that the pre-discount penalties total of 173.3 million pounds, the OFT said.
The OFT did not say when a final decision on the level of fines would be taken.
The regulator added that supermarket group Sainsbury was the first to apply to the OFT for leniency and will receive complete immunity if it continues to co-operate.
Investigations will continue against Imperial Tobacco, Shell and retailers Morrisons, Morrisons-owned Safeway, Tesco and the Co-operative Group, the OFT said.
Imperial Tobacco said in a statement it had not admitted to any infringement of competition law and had not acted in any way contrary to the interests of consumers. It said it would continue to co-operate with the OFT.