http://www.bloomberg.com/apps/news?pid=20601103&sid=a32nU1bElYRw&...

http://www.bloomberg.com/apps/news?pid=20601103&sid=a32nU1bElYRw&refer=news

VIX Jumps Most in 6-Weeks as Banks Decline, Retail Sales Slump
Email | Print | A A A

By Jeff Kearns

Jan. 14 (Bloomberg) -- The benchmark index for U.S. stock options rose the most since Dec. 1 after retail sales declined more than twice as much as forecast and a gauge of banks retreated to the lowest level since 1995.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, jumped 14 percent to 49.14 and rose as high as 51.55. The index measures the cost of using options as insurance against declines in the Standard & Poor’s 500 Index, which slipped 3.4 percent, led by financial companies.

“The financials are scaring people because they’re what took us down in the first place,” said Jeremy Wien, a VIX options trader at Societe Generale SA in New York. “There hasn’t been good news in a while.”

December retail sales fell as rising unemployment caused consumers to cut spending. The 2.7 percent decrease, the sixth consecutive drop, extended the longest series of declines on record, the Commerce Department said today.

U.S. banks led declines as investors speculated that lenders including Huntington Bancshares Inc. and Wells Fargo & Co. may need to cut their dividends or raise capital. The KBW Bank Index, which includes the biggest U.S. national and regional banks, slid 6 percent to the lowest since August 1995. The 24-company gauge is down 19 percent this year after plunging by half in 2008.

Financial stocks in the S&P 500 dropped 5.7 percent to the lowest level since Nov. 21, the day after the benchmark for U.S. equities fell to an 11-year low. The gauge of financial stocks plunged 57 percent last year and has lost 17 percent so far this year.

Options give the right, though not the obligation, to buy or sell a security at a set price and date. Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease.

To contact the reporter on this story: Jeff Kearns in New York at [email protected].

Last Updated: January 14, 2009 16:52 EST