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Quadruple witching day is not that scary
December 16, 2016 / 5:39 PM / 9 months ago

Quadruple witching day is not that scary

NEW YORK, Dec 16 (Reuters) - Friday marked “quadruple witching day,” the quarterly simultaneous expiration of U.S. options and futures contracts, but ominous as it sounds, traders may have little to fear on this day in terms of volatility.

While these days are still some of the biggest in terms of volume in options and stocks, technological advances and the availability of weekly options have robbed the day of some of its power to cause stock market gyrations, market watchers say.

“It used to be a bigger deal than it is now,” said Richard Selvala, chief executive at Harvest Volatility Management LLC.

The concurrent expiration of many kinds of contracts tends to boost trading volume as investors buy and sell them to replace expiring positions. The day has often been viewed by traders with anxiety due to its potential to rile stocks.

Recent trading history, however, suggests otherwise. On the last 10 witching days, going back to June 2014, the S&P 500 has declined more than half a percentage point on only three occasions.

“Technology now is so much more efficient. The ability to know exactly your position and your risk is so much greater than it was back in the day,” said Selvala. “You had guys running around with sheets of paper and traders did not know what their positions were for hours.”

The launch of weekly options in 2005 - contracts that expire at the end of each week - have also helped spread the volatility.

“The listing of weekly options has been a factor because there are now more expirations to choose from,” said Fred Ruffy, of options analytics firm Trade Alert.

Weekly options, especially for heavily traded names in the options market such as SPDR S&P 500 ETF Trust and Apple Inc, are very popular. For instance, weeklies on Apple accounted for three of the 10 busiest Apple options over the last 10 days, per Trade Alert data.

The launch of VIX options in 2006 has also played a role, Ruffy said. These contracts, which can be used to protect against volatility, expire on Wednesdays and provide an alternative to traders who might wish to avoid the rush of Friday’s expiration.

VIX options account for about 4 percent of overall equity options volume.

By 12:01 p.m. ET (1701 UTC) on Friday, total options volume was at 8.7 million contracts, nearly in-line with the pace of trading over the last month, per Trade Alert data. The VIX was down 3 percent to 12.40. (Reporting by Saqib Iqbal Ahmed; Editing by Dan Grebler)

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