Day at risk of very high volatility on the equity markets, with the Milan Stock Exchange at a loss (here the trend in real time): today, Friday 16 September, the so-called “day of the four witches” has arrived, i.e. the day on which four types of structured finance contracts expire simultaneously: index futures, index options, single security futures and single security options. Stock and stock index options expire on the third Friday of each month, while futures are quarterly and expire on the third Friday of March, June, September and December. The next appointment will therefore be Friday 16 December. These are contracts that, collectively, are worth trillions of dollars and which expire. That’s why in the Quadruple Witches Day the movements on the markets are many. And when a derivative expires, it brings volatility to the underlying.
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What are traders all over the world doing today? “With the expiry – explains Carlo De Luca, Gamma Partners asset management manager – you have to close the position and this can happen in two ways: or that is, you bring the contract to the next expiration (which will be in three months, therefore December, ed) or you close it, that is, you buy if you have sold in advance short or you sell if you have bought it. When you roll or close you are moving a derivative and this affects the underlying. A depending on the so-called open interest there have been cases in which there have been trillions of dollars of movements that have caused the underlying to have a very high volatility ».
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Today, September 16, therefore, many will close the contract(having a loss or a gain depending on the trend with respect to the moment in which they opened the position) and many will open the new position on the contract with a subsequent expiration. “The very large price fluctuations that may occur today – explains Carlo De Luca of the Partners range – are dictated by technical expiry and not by economic reasons or by the valuation of the underlying assets’ fundamentals”. The day of the four witches does not affect medium-long term investments.
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