It is so-called quadruple witching day, but it may not be as frightful as it sounds. The spooky-sounding term occurs on the third Friday of the past month of every quarter, in March, June, September, and December, and refers to the simultaneous expiration of options and futures tied to individual stocks and stock-indexes.
The four-pronged expiration event for options, which grant investors the right but not the obligation to buy an underlying asset at a given price and time, and futures has instilled a certain degree of trepidation in Wall Street.
It threatens to foster a spike in volatility, or at least volume, in the market but according to Dow Jones data, the period isn’t as ominous at it appears. In fact, the performance of the S&P 500 index SPX, -0.13% for days in which quadruple-witching occurs no more raucous than any other Friday.
According to Dow Jones data, S&P 500 returns for “quad witch,” in the parlance of Wall Street floor traders, over the past three decades or so since 1990, is about 0.6% in absolute terms, compared with an average absolute return of 0.7% for every other Friday over the same period, including quad witchings.
According to MarketWatch’s Tomi Kilgore, writing for The Wall Street Journal, the real action on quad witch is the volume in the final hour of trading, but volumes have been relatively mundane recently and Wall Street’s so-called fear gauge, the CBOE Volatility Index VIX, +0.62% has experienced an uncanny level of quiescence in recent months, trading well below its historic average of 20.
“What you’re going to have is less volume and then around 3:30 p.m. [Eastern Time] we’re likely to see volumes spike up dramatically,” said Joe Saluzzi, partner at Themis Trading, referring to Friday trading action.
The S&P 500 traded with a fairly narrow band, but ended modestly lower, off 0.1% for the both the S&P 500 and the Dow Jones Industrial Average DJIA, -0.10% while the Nasdaq Composite Index COMP, +0.00% ended near break-even. However muted trade has been the characteristic norm for the broader U.S. market lately, which hasn’t seen a decline of 1% in 108 trading days, but has steadily made an assault on all-time highs inspired by President Donald Trump’s pledges to unfurl a batch of measures to spur economic growth.
While quadruple witching tends to boost volume, Art Hogan, chief market strategist at Wunderlich Securities, says the new normal has been more sedate. “If we were in a more volatile market you’d see it, but not with the VIX at an 11-handle,” he said.
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