By Robert Alan Schwartz, John Aidan Byrne, Antoinette Colaninno
This e-book is predicated at the lawsuits of a one-day convention on marketplace caliber, held on the Zicklin tuition of commercial on April 30, 2002. the various questions addressed during this e-book are: How should still industry caliber be outlined, measured, monitored and more suitable? what's the facts concerning the present kingdom of our markets? How powerful have fresh thoughts been? How will we larger meet our investor wishes?
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Additional resources for A trading desk's view of market quality
If there is no liquidity in the underlying stock, there is an accentuated volatility for the underlying stock. This is an increased volatility for the options trader, and volatility is very important for options trading. However, as Tom just said, people do not trade options just for the sake of trading and speculating. Some participants trade to hedge. You cannot establish the hedge very easily in an illiquid market. In that respect, what you alluded to as bad volatility won’t help the options market at all.
About 2/3 of the time, volatility was between 40% and 50%, and indeed the highest individual bar is about 45%. This is a pretty tight compression of volatility as we measure it in the options business. We can also look at the implied volatility and compare it to the historical volatility of an underlying stock. Exhibit 22 shows an overlay of both the implied volatility (in this case it is a solid line), and the historical volatility (a dotted line). Exhibit 22. AOL 2001-02 Historical and Implied Volatility (30 Day) In 2001-2002, volatility ranged from a low of about 30% to a high of about 90%.
Do you think that consolidation would hurt or help market efficiency? SCHWARTZ: I could respond to that, but I have a better idea. Luca Filippa is here from the Borsa Italiana. Luca is a lot closer to what is going on in Europe. Luca, would you care to answer? LUCA FILIPPA15 [From the Floor]: Sure, thanks, Bob. Sharon Salamon has posed the one million dollar question in Europe. The efficiency of price discovery in European exchanges is quite good now. As you know, we had a large discussion in the year 2000 on a potential alliance between the eight major exchanges.
A trading desk's view of market quality by Robert Alan Schwartz, John Aidan Byrne, Antoinette Colaninno