Indicator of the Week: Expiration Week
By Rocky White, Senior Quantitative Analyst
Foreword: Option traders know that this coming Friday is the third Friday of the month, meaning options on equities expire. Additionally, it's a triple-witching expiration week, meaning stock index futures and stock index options also expire. As such, I'm taking an historical look at what expiration week has meant for the market and certain stocks.
Triple-Witching Expiration Week: The table below summarizes S&P 500 Index (SPX) weekly returns since 2010. Expiration weeks have been weak overall during this timeframe, but triple-witching expiration weeks have actually been quite bullish. Eight out of 10 have been positive, and these weeks average a return of almost 1%.
Also notable is the standard deviation of returns. It is often said that triple-witching expirations have the potential for increased volatility, due to the abundance of contracts expiring and the implications of many traders closing positions and opening new ones. However, the week of a triple-witching expiration has been less volatile than non-expiration weeks.
Another reason for optimism heading into this week: September, specifically, has been quite bullish. Below I show the last 10 September expiration weeks. There's quite a streak going, with the last six of them being positive (five by more than 1%). Even including the very bad expiration-week loss of nearly 5% in 2002, September expiration week averages a 1.08% gain.
Individual Stocks and Triple Witching: Are there individual stocks that benefit from triple-witching expiration? I don't necessarily have a theory on why some stocks would outperform others during triple-witching expiration weeks, but I do have the numbers showing some stocks have, in fact, stood out from the pack. Below are the stocks that have the best average returns during triple-witching expiration week. Note the last column in the table shows the average return during other expiration weeks (non-triple witching). Interestingly, those returns are quite weak on a lot of the stocks on this list. Okay, maybe it's not that big of a surprise, given the market in general has been weak overall during this timeframe (see the first table in above).
This Week's Key Events: Housing and Manufacturing Data on Tap
Schaeffer's Editorial Staff
Here is a brief list of some key market events scheduled for the upcoming week. All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.
And now a few sectors of note...
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