VIX Volatility Index Soars on Libyan Revolt

Pop goes the VIX.

Wall Street's favorite fear meter jumped more than 26 percent Tuesday, its biggest one-day gain since May, as stocks swooned on fears the Middle East turmoil would spread and oil prices would continue to climb. The VIX, the CBOE's volatility index, finished the day at 20.80.

The S&P 500 declined 2 percent to 1315, and the Nasdaq was down 2.7 percent to 2756. The Dow was down 1.4 percent at 12,212.

Dan Deming, who trades the VIX for Stutland Volatility Group, said the move is not unlike the rise in the VIX in late January, when the stock market sold off on concerns about revolution in Egypt. But the VIX retraced its gains after that move, and it may not this time, he said.

"Libya is a pretty large source of oil for the rest of the world. It's going to be difficult for the western world to get a handle on what the implications are and that's going to lead to uncertainty," he said.

On Tuesday, Libyan leader Muammar Gaddafi vowed to crush the revolution, fight on and die as "a martyr."

"It's not a one-shot deal like it was with Egypt...Now you have to look realistically down the line. If oil continues to run up like this, it's going to be a tax on the domestic economy," said Deming.

Deming said the bad news from the Middle East hit at a time when the stock market was overbought and ready for a selloff. But the VIX may hold its gains even if the stock market steadies.

"We're basically back just above the mean average. A 20 VIX means a 1.25 percent move on any given day over the next 30 days," he said.

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