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Freaky Friday Potpourri: The World Keeps Turning as Quadruple Witching Hits


Yep, it's quadruple witching in the city of critters, the day in which equity index futures, equity index options, equity options and single stock futures all expire.


Raven hair and ruby lips
Sparks fly from her finger tips
Echoed voices in the night
She's a restless spirit on an endless flight

(The Eagles)

Good morning and welcome back to the black hat pack. We edge into the final fifth of our freaky week to find four brooms awaiting the flickering ticks. Yep, it's quadruple witching in the city of critters, the day in which equity index futures, equity index options, equity options and single stock futures all expire.

By my pen, I've traded over 200 expirations and I've learned a thing or two during that time. The first is that, due to the plethora of gamers, "gaming" the direction is a futile feud. Second, there are unforeseen crosscurrents that, while difficult to see, must be respected. Third, those crosscurrents typically manifest in the days prior to the actual expiry. And finally, "pin risk" occurs when there is outsized open interest (at a particular strike) relative to average daily volume.

I offered a nonsensical thought earlier this week that, just as August expiration put in a near-term low, September expiration could conceivably serve as the mirror image. While I'm not crafting my risk profile as a function of that feel, it's ruminating in the back of my crowded keppe for whatever it's worth.

Did Somebody Say Risk Profile?

For my part and with my coin, I've been relatively active since returning from my west coast jaunt.

On Wednesday, I scaled into puts in Mother Morgan (after earnings) and the S&P. Yesterday, after fading (read: selling) Goldman on the opening, I rotated out of Morgan (as a function of the 9% dip and respecting double indemnity) and rolled my "stop" on GS from $214 (breakdown resistance) to the other side of $207.5 (the 200-day moving average).

As it stands, I'm holding steady on the S&P puts (December paper) against some tertiary exposure in the metals, albeit a pittance of my past size. The bottom line is that, with volatility at these levels (VXO 20), I wanna "trade around" gamma while keeping plenty of dry powder. My sense is that the fourth quarter is gonna be one heckuva humdinga!

As the World Turns

We've been talking about a confluence of dynamics that are influencing the multi-linear equations that shape capital markets. Among them, and by no means a comprehensive list, are:

  • Credibility and, ergo, investor psychology.

  • Perception (don't fight the Fed) vs. reality (nobody is bigger than the market).

  • The dollar as "the" valve (asset class deflation vs. dollar devaluation)

  • Globalization, or "how long will foreign holders of dollar-denominated assets put up with the decaying greenback?"

  • The elasticity of debt and the structural implications of credit.

  • The transfer of wealth (as China and Petrol Nations accumulate paper and hard assets).

  • Redemption Songs, with the window creeping ever so closer.

  • Societal Acrimony, in the context of nationalization, geopolitical strife or the "have's vs. the have not's".

At any given time, any one of these elements may emerge as the "lead story" but, the truth is, they all exist and the effects are cumulative. How and, more importantly, when they manifest will hold the key to the vault that oh-so-many people are currently searching for.

And given the fact that foreigners are holding such strong cards at the moment, we must respect that we won't always see when the chips are stacked against the US.

Random Thoughts

  • Since the FOMC cut rates, some 23 investment-grade companies have come to market with deals. Some of this is to be expected but, as psychology is such a critical metric, we must appreciate the collective perception.

  • High quality "have's" vs. "have not" dilemmas! The Forbes 400 list is out and, as $1.3 billion is the minimum net worth for inclusion, 82 billionaires failed to make the list. Billy Gates, at $59 billion, took the top spot for the 14th consecutive year. Must be nice.

  • I typically like to allow a half hour each day for the noise to abate and the true tone to emerge. Expirations and FOMC days don't always follow the same script as the former see's "bookend bell" action and the latter is a tale of two tapes.

  • On top of that, tonight is Kol Nidre (the start of the Yom Kippur holiday) and the ranks will likely thin as we edge to the bell. Along those lines and while I have you, lemme take a moment to wish those observing "an easy fast" and, once again, a happy and healthy new year.

  • Good luck Minyans and just remember-you're a Melon!


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Positions in GS, S&P
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