Volatility And The Uptick Rule

Posted by Bull Bear Trader | 5/05/2008 02:34:00 PM | , | 0 comments »

Jim Cramer and Joe Kernen discuss the change in the uptick rule once again (See the CNBC video here). Cramer has been on this issue for a number of months now, but Kernen does offer some counter-point as to whether this is any different than ganging up and driving a stock higher. While there are different volatility studies that don't conclusively point to higher volatility as a result of changes in the up-tick rule alone, the change in the rule does certainly allow traders to get into and out of a short position much easier. In the past it may have taken a longer time to build a short position, so you were less likely to give up the position unless you were certain the stock was going higher. Now you can move into and out of the position with more ease. To Cramer's point, it also appears that less effort is made to insure the stock can be shorted, and that shares can actually be borrowed, but this is not really an uptick issue. If you are naked shorting - shorting shares you did not borrow - then you are violating the law, regardless of whether you shorted those shares on an uptick or downtick.