Another visit to the pits today, another unique perspective. As it turns out, today is what was once known as a “witching” day- a day on which multiple contracts expired, specifically, stock options, stock index options, stock futures and stock futures options. In the past, witching days were significant because the markets were all closing at once, leading to higher volume and volatility. Today, the closes are more staggered, but even so, there’s a general expectation that one will see similar effects.
Why would it matter? Contract expiration dates typically come with a lot of buying and selling across the board as people adjust their trades and strategy. For instance, if you had March options and they expired today, you may be assigned xx hundred shares of stock futures, which you would then want to immediately sell, and so forth. The outcome, in the past, was always a great amount of activity.
Not so today. Our contacts on the floor said today has been even slower than it has been as of late- not only bucking the “witching” day tradition, but continuing the trend of lower volume and volatility on the year. When we asked why they thought this might be the case, inferring the usual suspects (MF Global, anyone?), they added the recent Goldman Sachs and JP Morgan letters that have been getting circulation to the stack of potential reasons.
To be fair, there’s no real way to know what, exactly, is causing the lower volume, but at this point, our interest is piqued, especially because lower volume can have an impact on trading strategies and their performance. We’ll be delving into the data over the next week, but in the meantime, perhaps we write it off as leprechaun hijinks?
Have a safe and happy St. Patrick’s day, everyone!