Home Shayne Heffernan on InvestmentsEducation ‘Triple Witching’ Happens Today

‘Triple Witching’ Happens Today

by Paul Ebeling

#stocks #futures #options #expiry

The S&P 500 has seen another mid-month ranging ahead of Friday’s options expiry“—Paul Ebeling

The expiry of stock and index options this time is part of a quarterly event known as “triple witching,” where futures on indexes also expire.

We estimate that about $3.4-T of equity options are set to mature Friday, including $720-B of single stock options that is expected to be the most for any September expiration ever.

Heading into the event, option traders paid near record-high prices for put contracts. Calls for a correction in stocks are multiplying amid the spread of the Covid delta variant, a looming tax hike and the Fed’s plan to roll back monetary stimulus.

But, the S&P 500 has held above its Key trend line: the 50-Day MA. The benchmark closed Thursday at 4,473.75.

The Quarterly expiration usually coincides with a rebalancing of benchmarks such as the S&P 500, sparking single-day volumes that rank among the highest of the yr.

According to an estimate from a senior index analyst at S&P Dow Jones Indices, the rebalance in the index alone could force $55-B of stock trades.

So, a busy week is likely to get even busier. The amount of shares changing hands on exchanges Topped 10-B for 4 days running through Wednesday. That compared with an average of 9-B shares in August.

Over the past 2 wks, put options on the S&P 500 with less than a month to maturity accounted for about 15% of the total out-of-the-money put volumes, the most since the height of the VirusCasedemic chaos in Y 2020. Single-stock options have similarly shifted, with 71% of total volumes in short-dated maturities, expiring within 2 wks.

My work attributes the S&P 500’s recent low volatility to a condition where options dealers are “long gamma,” or going against the prevailing market trend. As, typically, options dealers need to hedge their positions by buying or selling the underlying stocks.

The Southside skew is extremely high in high short-dated tail hedge volumes. High Southside skew implies that investors may expect gamma to reverse in a further sell-off.

Many savvy traders do not trade in the 3 days prior to and the 3 day after options expirations

Have a prosperous day, Keep the Faith!

You may also like


Your Trusted Source for Capital Markets & Related News

© 2024 LiveTradingNews.com – For The Traders, By The Traders – All Right Reserved.

The information contained on this website shall not be construed as (i) an offer to purchase or sell, or the solicitation of an offer to purchase or sell, any securities or services, (ii) investment, legal, business or tax advice or an offer to provide such advice, or (iii) a basis for making any investment decision. An offering may only be made upon a qualified investor’s receipt not via this website of formal materials from the Knightsbridge an offering memorandum and subscription documentation (“offering materials”). In the case of any inconsistency between the information on this website and any such offering materials, the offering materials shall control. Securities shall not be offered or sold in any jurisdiction in which such offer or sale would be unlawful unless the requirements of the applicable laws of such jurisdiction have been satisfied. Any decision to invest in securities must be based solely upon the information set forth in the applicable offering materials, which should be read carefully by qualified investors prior to investing. An investment with Knightsbridge is not suitable or desirable for all investors; investors may lose all or a portion of the capital invested. Investors may be required to bear the financial risks of an investment for an indefinite period of time. Qualified investors are urged to consult with their own legal, financial and tax advisors before making any investment. Knightsbridge is a private investment firm that offers investment services to Qualified Investors, Members and Institutions ONLY. Qualified Investors are defined as individuals who have met those Qualifications in the relevant jurisdictions. Members are defined as individuals who have been accepted into the Knightsbridge membership program. Institutions are defined as entities such as banks, pension funds, and hedge funds. If you are not a Qualified Investor, Member or Institution, you are not eligible to invest with Knightsbridge. All investments involve risk, and there is no guarantee of profit. You may lose some or all of your investment. Past performance is not indicative of future results. Knightsbridge is not a registered investment advisor, and this disclaimer should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions. By accessing this website, you agree to the terms of this disclaimer. Thank you for your interest in Knightsbridge.