May 4, 2012

HFT Algo Creates Volatility on Demand, ^VIX

HFT algo creates volatility on demand, ^VIX.
 

Volatility spike at 16:00, source: Nanex

Nanex uncovers an HFT algo that is designed to create volatility on demand. See the event at 16:00 est on May 2, 2012. 
One claim that we haven't been able to debunk up until now, was that HFT dampens volatility. We believe that beneficial HFT acting as a market maker will dampen volatility. But there is only room for one or two market making HFTs in a stock, so newcomers have to find other ways of squeezing out profits from each equity transaction. Here's one such algo we uncovered that appears to be geared for creating volatility on demand (if someone designed this algo to make money from buying low and selling high - they failed miserably). Since we have seen this same algo pattern in the past, it is not likely to be from poor programming. See also Latency on Demand.

No wonder ^VIX exhibits strange behavior at the end of the day.


Tags: hft volatility on demand, hft algo creates volatility, ^VIX strange behavior, $vix behavior, HFT effect on ^VIX