All week, stock traders have shrugged off everything from hot inflation data in the US to another recession-threatening hike in interest rates over in Europe.
Now comes a $4 trillion options event that has historically stoked turbulence, just as equities are mired in the most subdued trading in two years.
In a quarterly episode ominously known as triple witching, piles of derivatives contracts tied to stocks, index options and futures are scheduled to mature Friday — compelling traders en masse to roll over their existing positions or to start new ones. This time, it coincides with the rebalancing of benchmark indexes including the S&P 500, another catalyst for more share transactions.
Though the risk is sometimes overblown by Wall Street players, the options event has a reputation for causing sudden price moves. And the one in September has typically been followed by an equity swoon the ensuing week.
One player to watch: Dealers on the other side of options transactions who are obliged to buy and sell stocks to maintain a market-neutral stance. A shift in their stock exposure, known by esoteric concepts like gamma, was cited as fueling the August selloff and is now blamed for this month’s inertia.
Source: Asym 500