With today’s Triple Witching options expiration, an event that occurs in each quarter-ending month on the third Friday, there has been the predictable tsunami of warnings about volatility — particularly with the “special” circumstances of this one falling after a national holiday on which the market was closed.
Yawn.
As we wrote a couple of years ago, yes: triple witching does sometimes see increased volatility as short-term traders lay bets in hopes of a big score. Fund manager window dressing can perhaps add to such volatility if both cohorts are moving in the same direction. Which way any options week volatility will go, however, is difficult to predict in advance.
Worse, however, is the advice about what follows a volatile expiration week: a reliable unwind in the opposite direction.
The market’s down during Triple Witching week? Get long late on Friday and let the rally fill your pocket starting on Monday. Stocks up? Paint the tape to the short side.
Problem is, this a market myth — a 50/50 proposition at best, as we described here in a blog post over 2 years ago. The statistics from that post remain the case to this day.
Humans only use 10% of their brains. Cracking one’s knuckles causes arthritis. Goldfish only have a 3-second memory.
None of these commonly held beliefs is true.
Me? I’m glad today’s options expiration is turning out to be only mildly down as I write this post mid-way through the trading day. Things could change in the next couple of hours but if the market remains flat, it may protect a few investors from making silly, short-term trading decisions based on the notion the market “always” reverses Triple Witching moves in the opposite direction the following week.
…because it just ain’t so.
Stick to your longer-term, disciplined approach and ignore today’s noise about options-related volatility. That is the play of the day.
