By Gareth Gore
Dec. 4 (Bloomberg) -- The benchmark index for European options increased for the first time in three days on concern that interest rate cuts across Europe won’t be enough to restart the region’s slowing economies.
The VStoxx Index rose 3.6 percent to 56.13 as of 2:54 p.m. in Frankfurt, bringing its rise this week to 9.1 percent. The benchmark measures the cost of using options as insurance against fluctuations in the Dow Jones Euro Stoxx 50 Index, which dropped as much as 1.6 percent today.
“There’s still a lot of concern and instability,” said Gonzalo Lardies, a fund manager at LCF Rothschild Group in Madrid. “It’s one thing to lower rates, but quite another to reinvigorate the wider economy. What’s needed is something much more complex than a simple rate cut.”
The European Central Bank delivered the biggest interest-rate cut in its 10-year history today after the economic slump deepened and the inflation rate plunged. That followed similar cuts earlier in the day from the Bank of England and Sweden’s Riksbank.
Today’s most-active options contracts on the Euro Stoxx 50 were call options expiring in December at a strike level of 2,600 points. European-style call options such as those traded on the index give the purchaser the right to buy at a pre-agreed level on a specific date.
Options are derivatives, or securities that derive their value from an underlying asset, and can be used to protect against a decline or to speculate on the asset’s future value.
To contact the reporter on this story: Gareth Gore in Madrid ggore1@bloomberg.net.
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