Options fear gauge surges, hits record high

CHICAGO (Reuters) - The Chicago Board Options Exchange Volatility Index stayed at lofty levels on Friday after notching a record high, indicating investors remain as fearful as ever after U.S. stocks sank.

Investors cashed out of stocks as signs mounted that the global economic slowdown could be deeper than feared and the corporate profit outlook darkened.

The widely popular VIX, often referred to as Wall Street's fear gauge, surged 14.68 percent to 77.75 late in the afternoon session. It peaked to an 89.53 reading near the open, which surpassed the record 81.17 set on October 16, using the modern VIX methodology that goes back to 1990.

The VIX measures projected stock market volatility conveyed by Standard & Poor's 500 index option prices, and generally moves inversely to the S&P benchmark.

"We are at crazy high levels in the VIX," said Joe Kinahan, chief derivatives strategist at Chicago-based online brokerage thinkorswim Group. "There is so much anxiety surrounding the market because of worldwide weak economic conditions."

But analysts note that volume in the options market has been thin, considering the dramatic move in stocks.

That is because some players appeared to have already offset their risk with options that effectively served as an insurance policy against declines in the stock benchmarks.

"Many investors have hedged their positions with futures and/or options and are not yet ready to unwind them," Kinahan said.

Another reason is that the November options expiration is four weeks from now, which is a longer cycle than normal and often traders will not dive into positions the first week of the expiration cycle, Kinahan added.

"Risk perceptions are higher as stocks around the world face another round of heavy selling and actual volatility remains at an extreme, said Frederic Ruffy, options strategist at New York-based Web site WhatsTrading.com.

The average daily move in the S&P 500 this month has been 38 points, compared to 30 last month and 9.9 points a year ago. The statistical volatility of the S&P 500 over the past 20 days is now 83.6 percent, up from the mid-20 percent levels in August, Ruffy said.

Other volatility benchmarks also remained at high readings, reflecting increased anxiety.

CBOE's sister index, the Nasdaq 100 Volatility Index or VXN, which measures the implied volatility in the technology sector, earlier notched a new high of 86.52, its highest level since September 2001. It stood at 76.76, up 9.91 percent.

VIX's predecessor, the VXO, which reflects projected volatility for the S&P 100 index options, was up 13.77 percent to 78.00. But the index was still well below the 150.19 reading set during the 1987 crash.

All of these indexes are viewed as contrary indicators that typically run opposite to the major stock benchmarks they track.

(Editing by James Dalgleish)