Quadruple Witching Friday

Quadruple Witching Friday

over 3 years ago2 mins

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Something wicked this way came on Friday as a “quadruple witching day” in the US brought the potential for higher-than-normal trading volumes and positively Jacobean volatility 🧙‍♂️

What does this mean?

No, a fourth sorceress hasn’t joined the cast of Shakespeare’s great tragedy. Quadruple witching day is instead the term investors use when several major US options and futures contracts simultaneously expire – which often coincides with a rebalancing of major stock market indexes.

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A stock futures contract obliges its owner to buy shares at a set price on a predetermined date – while an options contract gives its holder the choice of doing so 🤔 With many such contracts expiring on Friday – including $1.8 trillion worth of S&P 500-based options – investors had to decide whether to buy and keep the related shares or else “roll” their contracts forward by buying options or futures with a later expiry date.

Why should I care?

According to investment bank Goldman Sachs, only about a third of the expiring S&P 500 options were within 10% of the index’s price last week 🏦 The further from the mark they are, the lower the options’ value – and so there weren’t actually that many fluctuating wildly in price. Indeed, Goldman argued prior to Friday that June options were less likely to generate market-moving flows of cash into and out of stocks than their sheer volume would ordinarily imply.

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Investors updating their options and futures positions alongside others doing business as usual in the stock market is a recipe for elevated price swings – both up and down 📊 After rising some 40% from their March trough, some analysts reckon US stocks are set for a downward trend this week – while also acknowledging that, like first-year Transfiguration, the outcome of quadruple witching is difficult to predict.

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