After a tumultuous week for US stocks, Wall Street traders will face their final test on Friday, the second "four Wizards Day" of the year.
The "four Wizards Day" is the quarterly maturity date of financial derivatives for US stocks, which takes place on the third Friday of March, June, September and December each year. On that day, stock index futures, stock index options, individual stock futures and individual stock options expire at the same time.
During this period, US stocks and derivatives prices fluctuated sharply as investors rushed to unwind their positions, which usually led to a sharp increase in trading volume.
This time, options with a nominal size of $3.4 trillion will expire, according to the data.
After the Fed's decision, the wind changed suddenly again in US stocks overnight, the three major stock indexes tumbled across the board, and the Dow fell below the 30000-point mark. Following the previous entry of the Nasdaq and the S & P 500, the Dow is down 19% from its all-time high, approaching a technical bear market.
Market participants point out that the trading logic of the market is turning to concerns that the Fed may trigger a faster recession after raising interest rates too soon. A number of major central banks around the world have followed the Fed's hawkish policy of raising interest rates, making markets worried about an across-the-board tightening of global liquidity.
In the twinkling of an eye, the market ushered in another four witch days. One wave after another, how will US stocks react tonight?
Taking history as a mirror, what is the impact of the four Wizards Day on the market?
According to industry statisticsThis time there will be options with a nominal size of $3.4 trillion, which is similar to that in December.
As mentioned earlier, on the day of Siwu Day, the market trading volume will be significantly enlarged, one of the main reasons is that options and futures contracts will automatically settle with offset transactions. In the case of options, for example, in-price options will be settled automatically on the expiration date. As a result, the number of these deals completed will increase significantly.
In addition, during the four Witch days, transactions involving large contracts may cause price fluctuations, which will provide arbitrageurs with the opportunity to profit from temporary price distortions. Arbitrage can quickly expand trading volume, especially when trading volume is large and repeated many times.
As shown in the following figure, through the statistics of the trading volume and the rise and fall of the four witch days and the two trading days since 2019, it can be found thatThe daily trading volume of Siwu Day was significantly enlarged and mostly closed down.
To sum up, the positive impact of Siwu Day on the market is the profit opportunities brought by the carry trade, that is, the increase in trading volume may lead to a rise in the market. On the negative side, history shows that profitability will not improve, market gains are usually small, fluctuations bring gains, but losses are also obvious.
Therefore, investors can predict the trend of the future market through the performance of historical data, but at the same time, they also need to judge with market news.
What does the agency think?
Goldman Sachs Group's Rocky Fishman pointed out that a large number of selling of bearish positions could trigger a major turning point.
Spot Gamma said that until maturity, these large bearish positions will cause huge shocks and may lead to short covering but failure, and the S & P 500 can pay attention to the supporting effect of the lower 3600.
In any case, the US equity and bond market is likely to face continued volatility against a backdrop of global central bank tightening, persistent geopolitical gloom, high energy prices and a long-standing supply chain crisis.
Edit / phoebe