Quadruple witching

Quadruple witching

U.S. equity index futures are slightly higher this morning. S&P 500 futures are up 3 points in pre-opening trade. Traders are preparing for higher than average volume and volatility on Quadruple Witching Day. The U.S. Dollar is slightly higher this morning. Commodities priced in U.S. Dollars including crude oil, silver and copper are trading slightly lower. Dennis Gartman noted this morning that too many investors are betting on weakness in the U.S. Dollar and strength in commodities priced in U.S. Dollars, particularly gold. A short term countertrend reversal is overdue. Apple was upgraded by Macquarie from Neutral to Outperform. New target is $220. Apple added 1% in pre-opening trade. Toll Brothers and KB Homes were upgraded from Neutral to Overweight by JP Morgan. Target price on KB Homes was raised from $10 to $25. Both stocks are up 3% in pre-opening trade.

International equity markets were mixed overnight. European equity indices were slightly higher prior to the election in Germany this weekend. Asian equity markets were lower with the Shanghai Composite Index down 3.2% Canadian Pacific was downgraded by Stifel Nicolaus from Buy to Hold. The stock is down 1% in pre-opening trade. Procter & Gamble was upgraded by Citigroup from Hold to Buy. The stock is up 2% in pre-opening trade. And frankly, I don't have a great answer as to whether this makes it more or less likely to pin. The fact that actual open interest hasn't moved much leads to a more "none of the above" answer. But we can infer that if nothing else, we at least have some new hands on the open interest. But those folks could go either way. If it moves away from strike, the "new" options shorts will need to cover pretty quickly, and would add to the move (on the margins). Conversely, if it's hovering, the "new" longs will exit pretty quickly and push it towards the pin.

While the stock market has been rallying for the last 2 weeks, there is always concern about volatility on triple or quadruple witching days, as all the options expire simultaneously and must be closed out or left to expire. Historically we have seen bond yields drop as investors move into the security of bonds during volatile markets. But this morning, the yield on the 10 year bond is up slightly from the close yesterday. Should you be concerned about mortgage rates if the yield on the 10 year bond is rising? With the Feds “subsidizing” mortgage rates by purchasing mortgage backed securities, mortgage rates have been holding steady at and around 5% for the 30 year fixed rate mortgage, and this is likely to continue for now. Yes, mortgage rates move slightly as the yield on the 10 year bond fluctuates, but the movements have been small recently. The yield on the 10 year bond is currently at 3.45%, after having dropped below 3.4% yesterday.