Stock traders hammered by the worst sell-off since the global financial crisis of Y 2008 absorb another blast of volatility Friday when futures and options on indexes and individual stocks expired.
The event known as “ Quadruple witching” takes place every Quarter. Typically it coincides with the re-balancing of the S&P 500 Index, spurring price swings and increased trading volume.
This Friday that volume on the NYSE was a very heavy 3.3-B/shares exchanged.
The turbulence clusters around the market open and close, is adding another layer of uncertainty in a market where traders are already on edge.
Quadruple witching weeks tend to be extremely volatile as large derivative positions are rolled over.
Since Y 1990, the S&P 500 has swung 3.1% during the witching week, almost 2X the average for all frames according to the data.
On the bright side
The increased volume may help market liquidity as trading tends to slow heading into the Holiday season.
The market is scheduled to open for 1/2 day Monday before closing for Christmas.
Traders not wanting to try to catch a falling knife, or playing valuations either unload or take positions, thinking such opportunities may not be there Monday.
From the Fed to US-China trade tensions and fears for global growth, there is no shortage of headline catalysts driving the equity sell-off. What may have compounded the damage is a lack of liquidity, where a stock’s price can be easily swayed by a buy or sell order.
A measure of liquidity for single stocks has fallen 42% over the past year to hang near the lowest mark since the global financial crisis, while the gauge for S&P 500 futures tumbled 70% to a 10 year low, Goldman Sachs strategists wrote in a note to clients this week.
But volume picked up on the day.
Last time “Quadruple Witching” and an S&P 500 re-balancing took place, on 21 September almost 11-B shares changed hands, 71% above the average in the previous 3 months.
This time, the re balancing force $23.9-B of trades, up from around $19.7-B a year ago, the number the S&P Dow Jones estimated on 16 December.
Volume on US exchanges was 15.18-B shares, its highest mark in nearly 2.5 years, compared to the 8.81-B average over the last 20 trading days.
Have a terrific weekend