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Index Traders Take a Ride on the Wild Side

Rubin's resignation increased volatility readings, but the market isn't crumbling.

With confirmation of



Robert Rubin

's rumored departure, index-option traders got a ride on the market's version of the



But just like the famed Coney Island roller coaster, the ride seemed like it was over before it began, but it was scary nonetheless. The


volatility index spiked more than 8% to 28.53 in the 30 minutes after the news broke, just before 10 a.m. EDT. The index put/call ratio was at an unusually high 2.39 at the same point in trading. That's the Cyclone equivalent of screaming on the first drop down.

"The news hit so quickly it was difficult to trade the option," said one New York institutional options trader. "The Spoos

S&P 500

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futures went down and then bounced right back."

On the West Coast, hedge fund manager Greg Simmons of

CRI Capital Management

said the reaction is more proof that the market seems to be in an "untouchable" phase.

"We're on the verge of a potential war with China and Rubin resigns, and still, the general vibe I'm picking up is that people bought the dip again," he said. "It's Pavlovian. Investors have been well trained to buy the dip. Just ring the bell and the dog comes."

Despite the bounce, Simmons said a "leg down" may be imminent. "If they want to use this

Rubin's resignation as an excuse, that's fine."

Simmons said, however, that the speculation regarding Rubin's eventual departure from Washington has been on his mind recently, a common sentiment among professional investors. Florida hedge fund manager Rob Sorrentino agreed. "The first few hours are going to be unsettling, but it's probably good to get it out of the marketplace," Sorrentino said. "But the market is showing itself to be incredibly resilient."

Still, volume in the

S&P 100

and S&P 500 options was tilted somewhat toward the puts. The at-the-money May 680 S&P 100 puts traded almost 2,000 contracts by 10:30 a.m. EDT. The premium, however, rose only 5/8 ($62.50) to 10 ($1,000).

In the more institutionally inclined S&P 500 options, trading was similar. The out-of-the-money May 1325 put premium increased 1 5/8 ($162.50) to 12 ($1,200) on volume of more than 1,500 contracts by 10:45 a.m. EDT.