Q&A by Don Bright
IS DOWNSIDE VOLATILITY UP?
Did you see any increase in downside volatility after the uptick rule was removed last year? Were intraday short
trades becoming more profitable without the cushion of an uptick rule? And whatís your sense of how this new ruling might affect short strategies if it is broadened to
I trade the Russell 2000 almost exclusively short and am a little concerned about how any regulations that involve
short sales may affect the movement of indexes.ólindq
Actually, itís kind of interesting. Summer 2007 showed a big move in the volatility index (VIX) that was actually a thorn in the side of many brokerages and clearing firms. The September contract was being shorted at (near) all-time highs, while traders were hedging with January contracts. Well, the January contracts didnít move as expected, causing a major ripple within the industry. Many firms
stopped their traders from engaging in calendar spreads on the VIX.
And interestingly, the first couple of months without the uptick rule saw a big rise in the overall market. Our traders (in correlated pairs groups) were thrilled by
not having to wait for upticks, but since we are hedged, I donít feel we had any effect on the overall market movement.
We did see an increase in overall pairs and merger volume during the last 12 months.