By Gareth Gore
Dec. 12 (Bloomberg) -- The benchmark for European options climbed for the first time in five days as stocks plummeted on concern the Senate’s rejection of a $14 billion rescue plan for U.S. carmakers will deepen the global recession.
The VStoxx Index rallied 11 percent to 54.35 as of 11:34 a.m. in Frankfurt, the steepest gain since Dec. 1. The benchmark measures the cost of using options as insurance against a decline in the Dow Jones Euro Stoxx 50 Index, which retreated as much as 5 percent today.
The Senate last night voted against the plan to shore up carmakers after talks failed in a dispute over how quickly union wages should be cut. That raised concern the U.S. government may instead choose to tap money from the $700 billion bank-rescue fund as it seeks to salvage the auto industry.
“Nobody expected this,” said Ignacio Sanchez-Junco, who manages about $16 million in equities at Credit Suisse Group AG’s asset management arm in Madrid. “There are going to be more job losses, now we just have to see how deep this crisis will be.”
Today’s most-active options on the Euro Stoxx 50 were put options expiring in December at a strike level of 2,300 points. European-style puts such as those traded on the index give the buyer the right to sell at a pre-agreed level on a set 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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