This Friday is “Triple Witching” and I wanted to explain what this means and what impact it could have on the market. Triple Witching is when the contracts for stock index futures, stock index options, and stock options all expire on the same date. Triple witching happens four times a year and occurs on the third Friday of March, June, September and December. It is an event dubbed as “Freaky Friday” on Wall Street.
I have talked about the key resistance levels for the Dow, Nasdaq and S&P 500 and despite the title, triple witching has actually proved to be a bullish time for the market. In fact, 8 of the past 11 triple-witching expiration weeks have been positive. That means over the past three years, the market has advanced, as the bears close out their short positions in the options and futures markets which in turn helps the market. It can have a huge impact as their actions will help shape the market substantially.
The Nasdaq is currently trading at 1,573 (down 23 points). For those of you who are interested, you can track the options on the Nasdaq by watching the PowerShares QQQ Trust (QQQQ, $29.07, down $0.63). The December options will easily experience 20%-25% swings during the trading day this week and there will be a lot of action around the current strike price.
The December 29 calls (QAVLC, $0.83, down $0.50) have traded 4,500 contracts halfway through the trading session while the December 29 puts (QAVXC, $0.76, up $0.28) have traded over 18,000 contracts. Clearly with the market down today, there is more action/ volume in the puts than in the calls. No one really knows where the Nasdaq will close this Friday when these options expire but if you are bullish or bearish these might be your best trades.
I like the December 29 calls at these levels and they could be a bargain if the market turns around today. If you can get in at 80-85 cents, target $1.20 as an initial exit. I normally recommend 50% stops but for this special event there are none. Trade at your own risk.