Options investors eye stocks' slide warily

By Doris Frankel

CHICAGO (Reuters) - As stocks close out the week on a downbeat note after a worse-than-expected jobs report and in front of earnings, investors have become more worried about volatile markets in coming weeks.

The Chicago Board Options Exchange Volatility Index .VIX, Wall Street's favorite measure of investor sentiment, jumped to a session high of 28.62 on Thursday, up more than 15 percent from Wednesday's intraday low, as cautious investors protect themselves against market gyrations when earnings reports begin to trickle out next week.

Near the close, the VIX was up 6.7 percent at 27.98 after weak jobs data and thin volume helped drive the Standard & Poor's 500 Index .SPX down 2.8 percent to 897.29, just below 900, considered a critical psychological support level. The New York Stock Exchange extended Thursday's trading session to 4:15 p.m. due to technical glitches.

On Wednesday, the VIX fell as low as 24.80, a level not seen since September 12, 2008, the Friday before Lehman Brothers collapsed.

Options traders have recently picked up VIX calls and S&P 500 put options to insure against downside risk and a bearish scenario for the S&P benchmark in the coming weeks, said Chris McKhann, an analyst at Web information site optionMonster.com.

"We have seen a bit of a rise in the VIX, based on a disappointing jobs report ahead of the holiday weekend," said Scott Fullman, director of derivative investment strategy at New York-based broker-dealer WJB Capital Group.

"It appears that traders had been paying up for protection ahead of the end of a short week," he said.

The VIX is a 30-day risk forecast priced off of S&P 500 index options; it often moves up when the S&P benchmark falls as traders bid up options to manage stock market risk.