European Options Slump Most in Five Months; Allianz Calls Soar

By Adam Haigh

Sept. 8 (Bloomberg) -- European options slumped the most in five months on speculation the U.S. government's takeover of Fannie Mae and Freddie Mac may help to stem the slump in global equity markets.

Call options on Allianz SE, Europe's biggest insurer, jumped while puts on Axa SA, Europe's second-largest, slipped.

The VStoxx, which measures the cost of using options as insurance against declines in the Dow Jones Euro Stoxx 50 Index, tumbled as much as 10 percent to 24.11 as of 1:56 p.m. in Frankfurt, the most since March. The Euro Stoxx 50 added 4.3 percent to 3,322.28.

``This has really caught the market by surprise,'' said Ian Thurgood, an equities and derivatives broker at ODL Securities in London. ``This is the biggest decision we may see in the next ten years. Volatility will come back as people are now less worried,'' he said.

U.S. Treasury Secretary Henry Paulson said the government will provide short-term funding to the two biggest U.S. mortgage-finance companies and purchase debt backed by home loans, sending financial stocks higher across Europe.

Allianz shares soared 6.6 percent to 114.30 euros. Calls expiring in September with a strike price of 115 euros rose 1.9 percent, according to Bloomberg data. Puts on Axa expiring this month at a strike price of 22 euros fell 1 percent, the most heavily traded option contract on the Paris exchange, Bloomberg data show.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net.