Daily Commentary - Posted on Thursday, September 16, 2010, 4:42 PM GMT +1

3 Comments


Sep Thursday 16

September's Triple Witching

Friday, September 17, will be ‘Triple Witching‘ (stock index futures, stock index options and stock options all expire on the 3rd Friday of March, June, September and December of every year).

This time I’ll not check for the market’s historical performance on option expiration – especially September’s triple witching – , but what regularly happened the week thereafter, which is – promised – much more interesting.

Table I below shows September’s historical option expiration dates (‘Trigger Date‘, since 1990) and the SPY‘s (S&P 500 SPDR.) respective performance over the course of the then following 1 , 2 , 3 , 4 and 5 sessions, assumed one went long on close of September’s triple witching session in the past (like this time on close of Friday, September 17).


( * = no close above the trigger day’s close during next 5 sessions )

You’ll probably notice at a glance that the table is painted in red. The SPY closed higher on the session immediately following September’s triple witching on only 4 out of the last 20 occurrences (and only once – in 2001 – with a respectable gain), and was trading above September’s triple witching 2 days later on 5, 3 days later on 7, 4 days later on 5 and 5 days later on 4 occurrences only.

Instead the SPY posted it’s first close below September’s triple witching close one day later on remarkable 16 (historical chances for a higher close on a session immediately following September’s triple witching were 1:4), 2 days later on 2 and 3 days later on 1 occurrences. Overall the SPY posted at least one close below September’s triple witching over the course of the then following 3 sessions on 19 out of those 20 occurrences (or 95% of the time), significantly higher than the SPY‘s at-any-time probability of 64.81% for posting at least one lower close over the course of 3 consecutive sessions.

Conclusions:

If history gives guidance, Friday’s (triple witching) close might provide a favorable short- and intermediate term opportunity on the short side of the market. Historical probabilites (19 out of 20 occurrences with a lower close 1, 2 or 3 session later) and odds (the SPY was trading lower at least -1.0% 3 sessions later on 8 out of those 20 occurrences) are heavily lopsided in favor of the downside during the week immediately following September’s triple witching.

Successful trading,

Frank

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Remarks: Due to their conceptual scope – and if not explicitely stated otherwise , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in, do not use leverage (e.g. leveraged ETFs) but a marginable account is mandatory , do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (3)

 

  1. […] Dow down 6 of last 7. Five in a row 2002 – 2006 with heavy losses 2002 – 2005. Also see September’s Triple Witching for more […]

  2. […] Dow down 6 of last 7. Five in a row 2002 – 2006 with heavy losses 2002 – 2005. Also see September’s Triple Witching for more […]

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