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Volatility Index Calm After 35% Increase

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The Dow’s positive finish on Friday signaled a much more tempered day for the Chicago Board Options Exchange (CBOE) Volatility Index. The Index increased 35% on Thursday, as investors raced for defensive positions that utilize options in order to combat the 500 point selloff in the broad market.

The increase signaled the largest jump for the Index since July 1, 2010, notably surpassing its most recent peak in March, when Japan’s earthquake and resulting tsunami caused a nuclear crisis in that country.

Friday’s 60.93 point gain on the Dow meant the Volatility Index rose just 1.07% to 32, but hit an intraday high of 39.25, due to wide fluctuations in the market. In comparison, the Dow hit an intraday high of 11,555.41 and an intraday low of 11,139, a 416.41 swing.

The Volatility Index is a forward-looking expectation of the market’s volatility. It is based on calculations between buyers and sellers of calls and puts. 

In related news, small-cap stocks have borne the brunt of fears in recent weeks about the U.S. economy and issues with Italy and Spain. The $3.8 billion Fidelity Small Cap Stock Fund rang in as the biggest loser, Bloomberg reports. According to the news service, “the fund fell 11% from July 25 to Aug. 2, the most of 1,131 domestic stock funds with assets of at least $500 million. The $3.1 billion Aston/Fairpointe Mid Cap Fund and the $2 billion Ariel Fund were the next-worst performers, losing 10.4%.”