Today’s Quadruple Witching Bodes Well for Equities
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(eToro Blog) When a financial analyst talks about Witching Day, it’s not an obscure reference to Shakespeare’s Macbeth or the popular holiday known as Halloween. The analyst is talking about a particular day on which contracts for several types of futures or options expire – all on the same trading day. Today, happens to be a quadruple witching day, meaning that four quarterly futures options are expiring; namely, stock index options, stock index futures, single stock futures and stock options… truly it’s going to be a busy day in the “witching” world, and likely to be a busy, chaotic day on the trading floor as traders assess their personal situation and consider how best to improve them before the expiry.
Witching days happen in doubles or triples or as in today, quadruples, and they occur on the third Friday in the months of March, June, September and December. On a historical basis, the September quadruple witching day has been good for the SPX500, which has closed in positive territory 75% of the time. Over the past dozen September witching days, the volatility index (VIX) has traded below 20 and it will likely trade there again today.
According to Morningstar, which captures and analyzes market data, when both the quadruple witching day and a below 20 VIX coincide, its more than positive for the markets. During four of the last six coincidents Wall Street indices closed higher, with the DJ30 gaining an average 5.4%, the SPX500 an average 5.8% and the NASDAQ an average 7.3%.
While the historical data supports a positive outlook for Wall Street today, the outlook is a little spookier for the next week. Historically, the week which followed a witching day has seen declines, with an average weekly loss of -1.03% for the DJ30, -1.10% for the SPX500 and -1.24% for the NASDAQ.
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