vix01 call skew

By CHRIS DIETERICH

The stock market's volatility index rose to its highest level in two months on Monday as investor concern over the worsening European debt crisis carried over to U.S. markets and drove stocks down.

The Chicago Board Options Exchange Volatility Index, or VIX, jumped nearly 15% to 20.03 early Monday morning, rising above 20 for the first time since March 23. Higher VIX readings for a third-consecutive session suggest investors are increasingly wary that Europe's debt woes will continue to drag on U.S. markets.

The VIX is a measure of prices investors pay for options on the S&P 500 index, which are commonly used as portfolio insurance against market swings. The measures tends to rise when stocks fall. The VIX closed up 4.8% at 18.27.

The recent rise in the stock market's best-known anxiety gauge indicates renewed investor nervousness after electoral upsets in Spain and Germany, and a warning over the outlook for Italy's debt.

Monday's VIX jump, combined with a 12% rise Friday, show investors are concerned Europe's crisis "could really hurt the markets," said William Lefkowitz, options strategist for vFinance Investments.

To be sure, the long-running nature of Europe's crisis has damped the impact of headlines on the VIX. For instance, the volatility measure nearly tripled to a closing high near 46 last May after concerns over Greek sovereign debt emerged. But by November, when European officials announced a bailout for Ireland and its banks, the VIX, at 23, was at half that earlier level.

"In the next week, it might be a nonevent again," Mr. Lefkowitz said. "People have to make a bet whether or not it's ever going to be resolved."

Still, other market-volatility measures are also suggesting heightened investor caution. A key measure of investor demand for options on July VIX futures, or "call skew," is now at nearly the highest level in a year, said Mandy Xu, equity derivatives strategist at Credit Suisse.

The reading suggests investors are willing to pay a premium for protection against swings in stocks over the next two months.

"Investors are expecting further volatility in the markets based on the way they're positioned," Ms. Xu said.