Saqib Ahmed Iqbal

NEW YORK, (Reuters) – Wall Street volatility soared on Friday due to concerns about a South African coronavirus type. This sent Wall Street’s most followed fear gauge to a record two-month high.

Cboe Volatility Index climbed 8.37 points, to 26.95. Its highest level since Sept. 20, when it fell 1.9%. Travel, commodity, and bank-linked stocks were the most affected by the selloff that was triggered in part by the discovery and possible vaccine-resistant variant of coronavirus.

This was the largest one-day jump VIX has seen since Jan. 27, 2007.

Options traders loaded up on bets that offset further market declines, with puts on the S&P 500 Index and its tracking Exchange Traded Fund (ETF) logging heavy volumes.

The right to purchase shares at a certain price in the future. Puts are often used as a hedge to protect against stock market declines. Calls allow you to purchase shares at a future price and can be used for placing bullish bets.

Puts on the S&P 500 index outnumbered calls 2-to-1, the widest margin in about six weeks, according to data from options analytics firm Trade Alert. The same was true for SPY options.

Seth Golden (chief market strategist, Finom Group), stated that “Risk off and hedges on seems like the sentiment.”

The surge in volatility follows weeks of comparatively placid trading that saw the S&P 500 march to record highs, with stocks seemingly shrugging off concerns over soaring inflation potentially pushing the Federal Reserve to normalize monetary policy at a faster-than-expected pace.

Steve Sosnick, chief strategist at Interactive Brokers (NASDAQ:), believes the severity of Friday’s sell-off may have been exacerbated by investors unwinding “one-way bets” expressing the view that there was little alternative to stocks.

“These types of set-ups can quickly reverse,” he stated.

Andrew Thrasher, portfolio manager for The Financial Enhancement Group, had been concerned that recent gains in a handful of technology stocks with disproportionately large weightings in the S&P 500, including Apple Inc (NASDAQ:), Amazon.com (NASDAQ:), Microsoft Corp (NASDAQ:) were masking weaknesses in the wider market.

He said that this set off the fire for sellers to lower markets and the COVID news has stoked the bearish flame.

It is well below the all-time highs at 82.69 which were reached during March 2020’s market selloff.

Ophir Gottlieb of Capital Market Laboratories, Los Angeles’ chief executive said that a VIX between 45-50 and 50 would be “close to panic.”