Today marks the occurrence of triple witching expiration, which denotes the quarterly expiration of single stock and index options, as well as index futures. These four days are traditionally among the most actively traded sessions of the year. This event is taking place at a notable juncture, with the S&P 500 reaching a historic high. Chris Murphy from Susquehanna observes that this situation pleases bullish investors while causing discontent among bearish ones. He explains that with the market rallying to all-time highs, most put options are deep out of the money, and call options are in the money. Murphy forecasts that the expiration may have an impact if a market sell-off occurs, leading market makers with long hedged calls to start selling.
Historically, the week following the September triple witching is one of the weakest of the year. Jeff Hirsch from the Stock Trader’s Almanac informed clients that the week after September’s quarterly options expiration has been consistently challenging, with only a few significant exceptions over the past 34 years. Notably, the market has declined 27 of the past 34 years during this period. Since 1990, the average losses in the fourth week of September have been as follows: Dow Industrials – 1.09%, S&P 500 – 1.06%, and Nasdaq – 1.06%. Hirsch attributes this trend to end-of-Q3 portfolio restructuring, where managers adjust their summer holdings and position for the fourth quarter.
The S&P 500 will also experience rebalancing today, with three new companies joining the index: Dell Technologies, Erie Indemnity, and Palantir Technologies. These new entrants will start trading as part of the S&P 500 on Monday, replacing Etsy, Bio Rad Laboratories, and American Airlines Group. The “S&P inclusion effect” is observable, where a stock’s inclusion in the S&P 500 typically results in a significant upward move from the announcement date to the actual inclusion date, driven by demand from index funds tracking the S&P 500. Since the announcement on September 6, Dell has risen by 17%, and Palantir has gained 20%.
Additionally, while the S&P 500 reaches new highs, the Russell 2000 small-cap index is also performing strongly, trailing only 2% behind its 52-week high (with the historic peak in 2021). A breakout in the Russell 2000 could further excite bullish investors by supporting the “broadening out” narrative.
