Caution: Potentially Volatile Week Ahead

The stock market tends to be more volatile the week of quarterly options expiration

Senior Quantitative Analyst
Mar 8, 2023 at 9:01 AM
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Next Friday is the third Friday of the month, meaning it’s expiration week for options on equities. I’m old enough to remember when the third Friday was the only expiration date available every month. With weekly expiration dates now available for so many equities, I haven’t considered regular monthly expiration weeks in some time. Every week is expiration week.

The third Friday of March, June, September, and December, specifically, were considered triple-witching expiration months. On the third Friday of those months, not only did options on equities expire, but also on stock index options and stock index futures. With so many market contracts expiring on one day, it was often said that you should expect an increase in volatility. I believe stock index futures are the only contract left with just one expiration date per month available. This week, however, I’m looking at weekly market returns based on regular monthly expiration dates and triple-witching expiration dates. These expiration dates typically still have the most option activity.

Weekly Returns by Expiration Date

The table below shows weekly returns for the S&P 500 Index (SPX) since 2013. Quarterly expiration weeks end on the third Friday of the month in March, June, September, and December. Non-quarterly expiration weeks end on the third Friday of other months. Then “Other Weeks” are all other weeks of the year. With so many expirations available, I don’t consider them non-expiration weeks anymore.

Next week is a quarterly expiration week. Since 2013, the S&P 500 has performed poorly during these weeks, averaging a loss of 0.23%. The median return of 0.39%, however, is the highest of the three week types and the percent positive is high as well. This tells us when these weeks are down, they tend to be down big. This is also evident in the high standard deviation of returns for these weeks.

SPX Weekly Returns

With so many expiration dates available now, I would expect regular monthly expiration weeks to have little or no effect on stocks in more recent times. However, perhaps it’s just randomness, but since 2021, the S&P 500 has performed poorly during expiration week and especially poor in quarterly expiration weeks. The index has averaged a loss of 1.46% in quarterly expiration weeks and a loss of 0.67% in other expiration weeks. For quarterly expiration weeks, only one of eight have been positive, while for non-quarterly expiration weeks only four of 18 have been positive. The typical return for the S&P 500 for other weeks has been an average return of 0.4% with 61% of the returns positive.

SPX Weekly Returns 2021

The table below shows those eight individual S&P 500 returns during quarterly expiration weeks. The last three have been negative by at least 2%. The last positive return was March of 2022 when the index gained over 6% for the week.

SPX Quarterly Expiration Week Returns

Days of the Week--Do They Matter?

Finally, I thought it would be interesting to break down these weeks by trading day. For quarterly expiration weeks, like next week, Monday has been a volatile day, averaging a loss of 0.25% despite being positive 63% of the time. That’s followed by a bearish day on Tuesday then a bullish day on Wednesday. The end of the week has been especially bearish with Thursday averaging a loss of over 1% and positive just one of eight returns. Friday has averaged a loss too of 0.47% and positive just twice out of eight returns. It’s interesting that Friday, actual triple-witching day, has been the least volatile day in those tables for the S&P 500 since 2021.

SPX Quarterly Expiration Week Returns 2021


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