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Another Explanation for Stock Market Volatility

This is a key factor: the removal of the uptick rule in July 2007. A few weeks after the removal, volatility started to rise.

The removal of the uptick rule gives the sellers the powers to push stocks down fast and hard. Investors are scared, they buy puts. The VIX increases because more people buy puts for protection. The market makers sell puts to investors, they have to sell stocks naked (it's very bad for the market, but they are allowed to do tha!) to hedge their positions. Most of them probably will pile on to make more money. Stocks crash. The VIX goes higher. The cycle keeps repeating. When the market is oversold, many shorts want to cover. All of a sudden, the market pops hard, but the trend is still down and the VIX is still high, sellers come in again and blitz the market, The market tanks.

It's almost a certainty that the market is going to stay volatile until they reinstate the uptick rule.

Statistics show that rising volatility correlates with declining markets. Why? Because uninformed investors sell puts and get margin calls, when their stocks fall through the strike prices. Informed buyers purchase puts. Their purchases make the market makers sell stocks short, adding to the downside pressure and increasing volatility.

Thus you can see that the stock market is structural unsound, because the sellers have too much power.

The SEC must reinstate the uptick rule, otherwise the stock market continues to be a casino but not place for 401K investing or capital formation.