Friday's "quadruple witching" may spell volatility
By Doris Frankel
CHICAGO, Sept 17 (Reuters) - Halloween is still more than a month away,
but witches may be at play on Wall Street this Friday brewing up volatile
trade with the expiration of options and futures contracts.
"Quadruple witching" -- the term used by pros to describe the expiration
of four different options and futures contracts -- takes place each quarter
in the stock market on a Friday. The phenomenon could spell sudden spikes
and dips in the market as investors at the last minute either exercise their
positions or roll them forward.
John Person, head financial analyst with Infinity Brokerage Services,
expects to see broomsticks flying on Friday compared to the relatively tame
quadruple witching in March and June.
He says investors' differing views in the wake of the Federal Reserve's
latest deliberations could lead to volatility. On Tuesday, Fed officials
decided to leave U.S. interest rates at 45-year lows and said rates could
stay down for a long time to lift an economy that is losing jobs.
"The Fed meeting on Tuesday may have raised doubts that the economy may
recover sooner rather than later," Person said. "So in anticipation of lower
stock valuations, investors could liquidate their cash positions and thus
offset their derivative positions."
On the other hand, Person said, investors who believe the recovery will
be well underway by mid 2004 may be seeing this Friday as a continuation of
a buying opportunity.
"That is where the volatility comes in, because there are strong views
on both sides," he said.
This particular witching also comes on the heels of a slow summer that
marks the end of the fiscal year for some corporations and the start of the
fourth quarter for others. Fund managers could kick into high gear after the
summer doldrums by sprucing up their portfolios for the year-end.
Most September stock index options and some index futures such as the
Standard & Poor's 500 <SPU3> cease trading on Thursday and settle on
Friday's opening.
Options contracts on the Standard & Poor's 100 <.OEX> close on Friday
afternoon, while individual September stock options stop trading and settle
at Friday's close.
This year's newest addition to the brew are single-stock futures,
contracts that allow investors to buy or sell 100 shares of an individual
stock at a certain price on a set future date.
At OneChicago and NQLX, the two U.S. exchanges that offer futures on
individual stocks, September single-stock futures contracts at each exchange
will close and settle on Friday. NQLX lists 92 September single-stock
futures while 91 September securities contracts are offered on OneChicago.
"I don't expect the expiration of single-stock futures to have a huge
impact," said Jim Sauser, head equities trader at Resource Trading Group.
A lot of players have already rolled over their positions in
single-stock futures and have increased them in November and December,
Sauser said.
Richard Croft, president of Croft Financial Group, a Toronto-based
investment firm, does not believe there will be much drama this Friday.
"I just don't think there will be enough offsetting positions in these
derivative products to cause any significant distortions in the stock
market," Croft said.
"People are interested in this phenomenon because the derivatives market
is the the tail that ends up wagging the dog, which is the stock market,"
Croft said. ((Reporting by Doris Franker; editing by Gary Hill; Reuters
Messaging: doris.frankel.reuters.com@reuters.net; doris.frankel@reuters.com;
312-408-8750)) Wednesday, 17 September 2003 10:35:31 RTRS [nN17332838] {C}
ENDS
By Doris Frankel
CHICAGO, Sept 17 (Reuters) - Halloween is still more than a month away,
but witches may be at play on Wall Street this Friday brewing up volatile
trade with the expiration of options and futures contracts.
"Quadruple witching" -- the term used by pros to describe the expiration
of four different options and futures contracts -- takes place each quarter
in the stock market on a Friday. The phenomenon could spell sudden spikes
and dips in the market as investors at the last minute either exercise their
positions or roll them forward.
John Person, head financial analyst with Infinity Brokerage Services,
expects to see broomsticks flying on Friday compared to the relatively tame
quadruple witching in March and June.
He says investors' differing views in the wake of the Federal Reserve's
latest deliberations could lead to volatility. On Tuesday, Fed officials
decided to leave U.S. interest rates at 45-year lows and said rates could
stay down for a long time to lift an economy that is losing jobs.
"The Fed meeting on Tuesday may have raised doubts that the economy may
recover sooner rather than later," Person said. "So in anticipation of lower
stock valuations, investors could liquidate their cash positions and thus
offset their derivative positions."
On the other hand, Person said, investors who believe the recovery will
be well underway by mid 2004 may be seeing this Friday as a continuation of
a buying opportunity.
"That is where the volatility comes in, because there are strong views
on both sides," he said.
This particular witching also comes on the heels of a slow summer that
marks the end of the fiscal year for some corporations and the start of the
fourth quarter for others. Fund managers could kick into high gear after the
summer doldrums by sprucing up their portfolios for the year-end.
Most September stock index options and some index futures such as the
Standard & Poor's 500 <SPU3> cease trading on Thursday and settle on
Friday's opening.
Options contracts on the Standard & Poor's 100 <.OEX> close on Friday
afternoon, while individual September stock options stop trading and settle
at Friday's close.
This year's newest addition to the brew are single-stock futures,
contracts that allow investors to buy or sell 100 shares of an individual
stock at a certain price on a set future date.
At OneChicago and NQLX, the two U.S. exchanges that offer futures on
individual stocks, September single-stock futures contracts at each exchange
will close and settle on Friday. NQLX lists 92 September single-stock
futures while 91 September securities contracts are offered on OneChicago.
"I don't expect the expiration of single-stock futures to have a huge
impact," said Jim Sauser, head equities trader at Resource Trading Group.
A lot of players have already rolled over their positions in
single-stock futures and have increased them in November and December,
Sauser said.
Richard Croft, president of Croft Financial Group, a Toronto-based
investment firm, does not believe there will be much drama this Friday.
"I just don't think there will be enough offsetting positions in these
derivative products to cause any significant distortions in the stock
market," Croft said.
"People are interested in this phenomenon because the derivatives market
is the the tail that ends up wagging the dog, which is the stock market,"
Croft said. ((Reporting by Doris Franker; editing by Gary Hill; Reuters
Messaging: doris.frankel.reuters.com@reuters.net; doris.frankel@reuters.com;
312-408-8750)) Wednesday, 17 September 2003 10:35:31 RTRS [nN17332838] {C}
ENDS