VIX Premium Shows Stocks Bear Market Lasting 2 Years (Jeff Kearns and Gareth Gore)

  March 2 (Bloomberg) -- Options investors are paying twice this decade’s average to protect against losses in U.S. stocks through 2011, signaling the bear market that already wiped out $10.4 trillion of equity value may last two more years.

  “There’s a real panic in the markets, with some people wanting to buy long-term insurance at any price,” said Peter Sorrentino, who helps manage $16 billion, including $130 million in options at Huntington Asset Advisors Inc. in Cincinnati. “People have lost hope.”

  Contracts to protect against a decline in the Standard & Poor’s 500 Index for two years cost $15,160 on the Chicago Board Options Exchange, compared with $6,875 in 2007, according to price-adjusted data compiled by Bloomberg. Today’s level shows traders expect the benchmark gauge for U.S. equities to fluctuate twice as much in the next two years as it has since 2000.

  Federal Reserve Chairman Ben S. Bernanke said last week the economy is in a “severe contraction” that may continue to next year unless actions to save the financial system start working. The S&P 500 lost 53 percent since peaking in October 2007 while retreats in commodities and corporate bonds drove 920 hedge funds, or 9 percent of the total, out of business last year.

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