Stocks may face more turbulence than usual in the run-up to next Friday, called quadruple, called the market witchcraft event, warned Tom Lee of Fundstrat.
In a note on Monday, the head of research said the contract’s expiration date may have a bigger effect on the market, as the functions’ activity has nearly doubled since the beginning of 2020.
In the past, quadruple witchcraft has been a matter of market volatility in the short term. The occasion occurs when 4 types of contracts expire on the same day: individual inventory options, equity futures for singles, index options and index futures.
“One of the reasons why option maturities create a greater effect is that feature activity is skyrocketing relative to money volumes,” he said, noting that call volumes have skyrocketed by as much as 92%, S index volumes
He continued: “Even if the features are settled in cash, there is an effect on the underlying tools (individual stocks or indices), due to the related hedging/positioning in question at the original position. In other words, if the option volumes skyrocket, they will have an effect on stocks/indices. And as option volumes increase, expiration will have a greater proportional effect. “
During the last quadruple witchcraft in March, the sale began 4 days before the expiration date. Lee expects inventory market fluctuations around Friday’s event.
While “the vast majority of investors” don’t take any action, Lee prefers to reduce his positions at the beginning of the week and buy stocks in the middle of next week.
“However, remember, we wrote an investigation into quadruple witchcraft before the expiration of the march. And in fact, the ‘quadruple witchcraft’ of March 19 has created a safe coastline,” he added.
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