Today is triple witching expiration , the quarterly expiration of single stock and index options, and index futures. Each of the four days is traditionally one of the most actively traded sessions of the year. It’s occurring at an unusual moment: the S & P 500 is at an historic high. That, Chris Murphy at Susquehanna says, makes bulls happy, and bears unhappy. “Given we have rallied back to all-time highs 1) most puts are deep out of the money and 2) calls are in the money … I think the main way expiration would have an impact would be if we start selling off and market makers who are long hedged calls … need to start selling.” Week after triple witch: poor Unfortunately, the week after the September triple witch is historically among the weakest of the year. “The week after September quarterly options expiration week has been a nearly constant source of pain with only a few meaningful exceptions over the past 34 years,” Jeff Hirsch from the Stock Trader’s Almanac told clients last week, noting that the week after has been down 27 of the past 34 years. Fourth week of September: poor (avg. losses since 1990) Dow Industrials – 1.09%, S & P 500 – 1.06% Nasdaq – 1.06% Source: Stock Trader’s Almanac “End-of-Q3 portfolio restructuring is the most likely explanation for this trend as managers trim summer holdings and position for the fourth quarter,” Hirsch said. S & P 500 rebalancing today The S & P 500 will see three new entrants at the close today, each of which will begin trading as part of the S & P on Monday: Dell Technologies , Erie Indemnity and Palantir Technologies . They will replace Etsy , Bio Rad Laboratories and American Airlines Group . As is typical, the ” S & P inclusion effect ” is very evident. This is the phenomenon where the inclusion of a stock in the S & P 500 from the day the inclusion is announced to the day it actually goes in the index usually results in a move up that outperforms the market. This is attributed to demand created by index funds that track the S & P 500. Since the announcement at the close on September 6, Dell is up 17% and Palantir is ahead 20%. Finally, while the S & P 500 is at a new high, the Russell 2000 smallcap index is not far behind. It’s only 2% from a 52-week high (the historic high was 2021), and a breakout here would get the bulls even more excited because it adds to the “broadening out” story.
