Witching or Options Expiration happens today, early in the morning Index and Futures expire, then late in the day as the markets close, Single Stock and ETF options expire, making the tally four total, such the Quadruple term.
Options, in our simplistic terms, can be broadly defined as an instrument which gains its value from the price of another value, but with a time limit, such today’s expiration. Investors use options for insurance, (hedging), speculation, and often times leverage to maximize smaller dollar use for a specific time frame.
Funny things can happen, (maybe that’s where the term Witching came from) on options expiration days, and especially when we have four different type of contracts, along with low volume heading into a Holiday season. It would not surprise us to see either a yawn day or a volatile day with volume being light.
Often times prices of expiring instruments are pushed to certain specific levels, called strikes, which creates a temporary unrealistic price. Changing the price of a capital market instrument, of course changes the market indexes, such the dramatic movements at times.
Most option expiration days, we find it interesting to watch but not much need for participation, but occasionally prices move beyond reasonable levels, making for possible capital deployment.
Have a Good Day!