Options Signal Stock Peril as Analysts See Profits

Forecasts for the fastest U.S. earnings growth in 15 years are failing to convince options traders that the Standard & Poor’s 500 Index will extend its biggest rally since the 1930s.

S&P 500 options to protect against declines in stocks over the next year cost 22 percent more than one-month contracts at the end of last week, the highest since 1999, data compiled by London-based Barclays Plc and Bloomberg show. The gap shows concern that analyst estimates for record earnings by 2011 may prove exaggerated, endangering an advance that pushed the S&P 500 up 63 percent since March.

“It’s telling you that there’s severe anxiety about the future,” said Paul Britton, chief executive officer of New York-based Capstone Holdings Group LLC, which oversees about $1 billion. “People want to protect next year, and there’s a sense of urgency.” (more)