The 20 Best Stocks for Quadruple Witching Expiration Week

Next week is quadruple witching expiration, and Costco Wholesale Corporation (NASDAQ:COST), Philip Morris International Inc. (NYSE:PM), and Verizon Communications Inc. (NYSE:VZ) have historically outperformed

Dec 9, 2016 at 2:52 PM
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Next Friday is December options expiration, in which standard monthly options cease trading at the close. Not only that, but it's quadruple witching expiration, when stock and index options and futures simultaneously expire. This event occurs just four times a year -- in March, June, September, and December -- and could have stock markets seeing increased volatility throughout the week. Taking into account stocks that have options, trade at least one million shares per day, and are currently worth at least $10 per share, Schaeffer's Senior Quantitative Analyst Rocky White ran the numbers to see which stocks historically outperform during quadruple witching expiration week. Making the list were bulk retailer Costco Wholesale Corporation (NASDAQ:COST), tobacco firm Philip Morris International Inc. (NYSE:PM), and telecommunications name Verizon Communications Inc. (NYSE:VZ).

best stocks quadruple witching weeks

Since 2010, COST has been positive at the end of quadruple witching expiration week 81% of the time, averaging a gain of 0.9%. Heading into next week's trading, COST stock was last seen up 0.8% at $158.83, thanks to a price-target hike to $143 from $135 of Jefferies. Longer term, the security has rallied 11.8% off its early November low of $142.11 -- regaining a foothold atop previous congestion in the $150 area -- including yesterday's post-earnings pop that had COST trading at levels not seen since late August.

Nevertheless, short-term options traders are more put-skewed than usual toward COST. In fact, Costco Wholesale Corporation's Schaeffer's put/call open interest ratio (SOIR) of 1.26 is docked in the 85th annual percentile. Should COST extend its run higher, an unwinding of the hedges related to these bets could help buoy the shares in the near term.

PM has been positive 81% of the time during quadruple witching expiration week -- looking back six years -- returning an average of 1.2%. The stock could certainly use a boost, considering it's surrendered 13.3% since topping out at a record high of $104.20 in mid-July, last seen at $90.31. However, PM's bleeding appears to have stopped in the $87-$88 region, home to the security's year-to-date breakeven mark.

Analysts, nonetheless, remain optimistic. Of the 12 brokerages covering the shares, 10 maintain a "buy" or better rating toward PM, with not a single "sell" to be found. Plus, Wells Fargo recently waxed optimistic on the "timeliness" of Philip Morris International Inc.'s application submission to the Food and Drug Administration (FDA), seeking approval for its iQOS alternative cigarette, saying the device gives a "unique competitive advantage" to both PM and Altria Group Inc (NYSE:MO).

Over the past six years, VZ has averaged a gain of 1.2% during quadruple witching expiration week, and has been positive 85% of the time. Today, the shares are up 0.5% at $51.39 -- as M&A buzz swirls -- widening their advance off their mid-November lows near $46 to 11.7%. However, this rebound appears to be running out of steam around $51.50 -- a level that has served as both support and resistance for VZ since mid-February.

Options traders have been buying to open calls over puts at a faster-than-usual clip in recent weeks, per VZ's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 1.62 -- in the 67th annual percentile. Drilling down, Verizon Communications Inc.'s December 50.50 call has seen the biggest rise in open interest among front-month contracts during the last 10 sessions, with 3,488 new positions added.

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