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vix fear gauge tumbles on wall st

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    'Fear Gauge' tumbles on Wall St

    October 29, 2008

    THE Chicago Board Options Exchange's volatility index, or VIX, dropped more than 16 per cent after the US stock market rallied.

    Known as the “Fear Gauge,” the VIX closed the session at 70, its lowest close since October 23.

    The drop in the VIX coincided with a triple-digit gain in the Dow Jones Industrial Average, which closed 10.9 per cent higher at 9065.

    The VIX tracks prices that investors are willing to pay to buy options on the Standard & Poor's 500 Index. As such, it tends to move inverse to the stock market and is used to measure future moves in stocks.

    Options traders were encouraged by the move in the VIX, but pointed out that the index remained near all-time highs.

    "It's almost like having a fever of 107 (degrees), versus 109," said Michael McCarty, an options strategist with Meridian Equity Partners. "Yeah, it's lower but you're still in the hospital."

    Mr McCarty said he was looking for the VIX to move below 50. At that point, Mr McCarty said, investors would have signalled a growing confidence in the market.

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