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Housekeeping Prompts Vol Uptick

Implied equity volatility as measured by the Chicago Board Options Exchange jumped 1.34% Thursday to hit 12.67%, a level not touched since early September.

Implied equity volatility as measured by the Chicago Board Options Exchange jumped 1.34% Thursday to hit 12.67%, a level not touched since early September. Traders and brokers attributed the move to year-end book cleaning, which was prompting buying of volatility to cover shorts or take profits on positions before bonuses are allocated.

"Vol is well supported," said one trader, who noted even if there were sellers at this level the perception that the weight of buying interest was buoying vol levels dissuaded any selling. Most interest was focused on Dec 09 Euro STOXX 50 variance swaps as well as on other indices out to two or three years. There was also some buying of simple straddles on the principal equity indices. A trader said most firms' equity strategists are expecting implied volatility to stay range-bound for the beginning of the New Year which also suggests the buying is connected to book cleaning rather than a directional view.

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