Quad Witching Day Coming - Can Market Survive The High Volatility?
Quadruple Witching Day is one of the most important events in the stock market as it always witnesses heavy trading volume and makes the market highly volatile compared to normal days.
1. 4 kinds of derivatives expire on this day
On the Quadruple Witching Day, four kinds ofderivatives - stock options &futures; index options & futures - expire on the same day. There are 4 Quadruple Witching Day in a year, respectively in the 3rd Friday of last month every quarter.
There is another term called the Quadruple Witching hour: the last trading hours on Quadruple Witching Day. The market is chaotic on this day.
2. Heavy trading volume due to frequent transactions
Different from trading stocks, futures and options have a special time parameter.
So traders often seek to close their open positions in advance of expiration.
If investors want to keep a position through quarterly expiration, they must sell the expiring contract and buy into the newer contract, which is called“rolling”.
Therefore, on this day, many contracts will be closed or newly opened, making the transaction volume higher than normal.
Chart from bloomberg
3. Arbitrage Opportunities and Risks
Quadruple witching may provide arbitrageurs the opportunity to profit on temporary price distortions.
You may be fortunate or unfortunate to buy equities or options, futures at a unreasonable price because the high volatility may make investors irrational.
Investors focused on short-term investing should be ware of quad witching day and make sure you have enough margin.
4. How did stock market performed on and after the quad witching day?
In the past 4 quad witching days, the 3 major indices $S&P 500(.SPX)$ ,$NASDAQ(.IXIC)$ , and $DJIA(.DJI)$ had a 50/50 chance of going up and down.
The VIX- so called fear index - remained on a relatively high level.
As one day performance might be partial, let's look at how the broader market move 5 days before and after the quad witching days during 2003-2020.
There is a higher probability of upward movement 5 days before the Quadruple Witching Day, and downward movement 5 days after the quad.
Generally speaking, if there is a rise before the quad witching days, the chances of a turnaround in the market after the quad witching days are slightly higher.
Do you hold derivatives expiring today?
Do you have arbitrage plan on this day?
Will your portfolio be affected by the Quad witching day?
Share your thoughts in the comment section and win tiger coins~
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我目前持有3张期权，1张$老虎证券(TIGR)$Put，1张$Grab Holdings(GRAB)$的Leap Call，还有一张$蔚来(NIO)$的call，都是单腿期权。
小赌怡情[开心][开心]
as long as not earnings season, nothing to fear but fear itself. [Cool]
Today the US markets closed lower as investors worry about high inflation rate and the Feds aggressive stance to hike interest rates.
Coindentally Today is also Quad Witching Day where contracts for stock futures, stock index options, stock options and single stock futures all expire. It is typical for bearish sentiments on such a day.
The markets had a rude awakening on Tuesday when data confirmed that inflation remains stubbornly high. Overall the outlook from companies such as FedEx, Goldman Sachs are dire as they cut back on jobs.
I do not have any positions on Options expiring today but I am on the lookout for juicy deals on quality stocks like Apple and Microsoft. Market volatility is part and parcel of investing. However since my time horizon is long, 10 to 20 years, I view this as a great opportunity to add to my portfolio as I believe that quality stocks will grow exponentially in the long term.
@Tiger_chat @TigerStars @MillionaireTiger @CaptainTiger