Hallie Elsner of Thomson Financial’s Corporate Services Group discusses Quadruple Witching and its effect on issuers and investors.
Transcript:Hi, I’m Hallie Elsner with Thomson Financial and this is Corporate Advisory Insights.
Today I will be talking about the market phenomenon known as Quadruple Witching. Investors and issuers alike will be interested in what this is and the effect is has on them.
In short, quadruple witching is when four independent derivative expirations occur nearly simultaneously, which results in increased volume as well as market volatility.
With the increases in “fast money” players and et allocation more frequently including alternative investments and complex strategies, activity on these days has become increasingly important. For investors, quadruple witching offers opportunities and presents risk, and for corporations, the event raises many questions such as what is happening to my stock?
On the third Friday of March, June, September and December at market open, S&P 500 Index Options and Futures expire. At the close on these same days, other index and equity options expire, as do single stock futures. To review, the four “legs” of quadruple witching are:
Equity Options
Index Options
Index Futures and
Single stock Futures
The trading activity around specific stocks will differ depending upon which indices it is included, but in general, here is what we can expect on these volatile days:
At both market open and close, traders will be seeking to un-wind options positions which remain open. In doing so, large block trades at open and close will occur. These blocks represent an amalgamation of orders ociated with the unwinding of positions linked to the expirations, and not standard institutional activity. This means that despite above normal trading volumes, significant changes in the ownership of the corporation are not likely to occur.
Furthermore, the volatility ociated with the expirations is a temporary phenomenon with almost no effect on the long-term trend, price and valuation of the stock. From a company’s point of view, it would be important to understand that this activity is mostly quantitative and arbitrage-related, not a fundamental buy or sell decision. As this activity falls outside of the standard institutional universe, it can’t really be influenced by the investor relations process.
Despite the distance between the IR process and this activity, it is important to understand quadruple witching as the trades on these days are typically outside the normal trading pattern and may prompt questions.
Thanks for watching.
Duration : 0:2:37
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