CBOE session finally resumes

Options trading was halted by a multi-hour breakdown. The delay prevented traders from gauging fear and hedging positions.

By Charley Blaine Apr 25, 2013 2:30PM
Trading floor © Digital Vision Ltd./SuperStockIf you were trying to get a quote on the CBOE Market Volatility Index ($VIX) -- the widely watched indicator of investor confidence or fear -- on Thursday morning, you couldn't.

The computer systems for the Chicago Board Options Exchange had broken down, and there was no trading in the VIX, as it's popularly called, nor in options on the Standard & Poor's 500 Index ($INX).

Trading finally resumed at about 1 p.m. ET. The VIX was trading at 13.23, down 0.38, or 2.8% from Wednesday. The stock market, meanwhile, was flirting with new highs.

So far, the breakdown does not appear to have been the result of hacking. News reports, especially from Jon Najarian on CNBC, suggested that the issue was a software upgrade that didn't go as planned.

The VIX measures the implied volatility of S&P 500 index options. It's often called a fear index because it offers a quick way to see how institutional investors view markets. If the VIX is rising, that's a sign investors have concerns about the stock market. Likewise, a falling VIX suggests confidence is building.

Big institutional investors use the VIX and options on the S&P 500 to hedge their positions. Typically, millions of contracts are traded daily.

The outage forced firms to hunt for alternatives, such as options on similar exchange-traded funds, The Wall Street Journal said. Traders told The Journal that these vehicles generally are imperfect substitutes.

CBOE earlier had planned to reopen at 10:15 a.m. ET -- 45 minutes late -- and then again at 10:20 a.m.

The system problems at CBOE were the latest in a series of technology outages that have raised questions about the stability of the complex computer networks that underpin business in U.S. financial markets, The Journal noted.

The VIX has fallen 25.9% this year as the stock market has risen. It hit a low of 11.30 on March 14 and 15, and has since risen 2.06, or 18%, but is still down from levels above 17.27 reached on April 15 and 17.56 on April 18. The indexes jumped as the stock market abruptly turned lower in the wake of worries about slowing economies around the world and a break in commodity prices.

The S&P 500 fell about 3% over that time frame. The index has risen for five straight days, gaining about 3.1%.

The VIX's all-time high was 80.6 on Nov. 20, 2008, during the worst of the 2008 market crash.

At 1:25 p.m. ET, the S&P 500 was at 1,592, up 13 points and less than three points below its all-time closing high of 1,593.37, set on April 11. The Dow Jones industrials ($INDU) were up 83 points to 14,760, about 105 points under its April 11 closing peak of 14,865.14.

The Nasdaq Composite Index ($COMPX) had gained 31 points to 3,300.37, just above its 2013 closing high of 3,300.16.

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