Morning Meeting: Quadruple/Triple Witching Day

Good Morning.

Triple Witching Days are third Fridays of March, June, September and December, when the month or quarter long contracts for stock options, index options and index futures expire.  The simultaneous expiration of the three types of markets is the reason that the event is known as triple witching.  Sometimes referred as quadruple witching days due to the expiration of single stock futures.

This morning shares brightened in Asia:

Hong Kong's Hang Seng Index rose 0.76% to 20,748.43, the Shanghai Composite Index moved off fresh multi-year low  to gain 0.52% to 2,035.39. The Nikkei improved 0.56% to 9,137.79.

Iphone5 debut boosted information technology shares all over Asia, but it's not the real driver of the rise according to us. Recently dips have been bought as investors are feeling protected by Central Banks' Put.  The Chinese central bank is awaited to join the US Fed, the European Central Bank, the Bank of Japan.

Safe-haven currencies such as the dollar and the yen were slighly pressured, with the yen struggling against the dollar at 78.25 yen while the euro edged up 0.1 percent against the dollar at $1.2978. Commodities-linked currencies such as the Australian dollar, which is often used to gauge investor risk sentiment, rose 0.4 percent to $1.0470.

Spot gold was up 0.3 percent at $1,772.21 an ounce, nearing its highest since February 29 of $1,779.10 hit on Wednesday. Over the past 30 days, gold futures open interest has gained about 25 percent to a one-year high, while prices have risen nearly $200, or 10 percent, in the past four weeks.

U.S. crude climbed 0.8 percent to $93.11 a barrel on concerns over instability in the Middle East and a refinery shutdown inVenezuela, while Brent rose 0.4 percent to $110.50.

With professional focused on performing the expiration and the Economic calendar short of events, the trading day have all the prerequisites to be driven by the witches.

On the actual quad witching day, and especially during quadruple witching hour (expiration hours), many investors attempt to unwind their futures and options positions before the contracts expire. This activity frequently includes repurchasing contracts and closing out positions. Quadruple witching days are usually accompanied by considerable volatility in stock and derivative prices, as well as increased trading volume. As a result, investors can anticipate and plan for the potential effects of these relatively turbulent trading days. Due to the combined effects of exercise, delivery, hedging, arbitrage as well as speculative options trading and futures trading activity, the most obvious effect is a dramatic increase in trading volume.

In fact, it has been documented, both stock and options trading volume during Quadruple Witching days rose by about 55% to 60% more than the daily average for the year. Even though there might be increased amount of volatility in certain stocks during Quad Witching, the overall stock market action does not look significantly different from a normal non Quadruple Witching day, due to the “PIN” risk. (We talked about Pin Risk in the previous posts)

An hint: more often than not, the market will have a positive day on those quadruple witching days.

Have a great one.

Originally posted at www.77sigmatrading.com