Quadruple witching expiration will occur in the week ahead on Wall St. on the third Friday of December, which means it is options expiration week. This also means, not only do equity options expire, but so do stock index futures, stock index options, and single stock futures. The analysis below shows a breakdown of previous expiration-week returns in a few different ways, to see what we can expect.
Below is a table showing how the S&P 500 Index (SPX) has performed on a weekly basis going back to 2009. According to this data, we can expect good things from the market this week. Quadruple witching expirations have averaged a return of 0.86%, and they have been positive 73% of the time. This is far better than a typical week, which averages a 0.28% return and is positive 55% of the time. Plus, you'll notice that other expiration weeks have typically been very bearish.
The last column in the table is also worthy of note, as it shows the standard deviation of returns. With all of the different market players closing and rolling positions, it is generally accepted that quadruple witching expirations have a lot of potential for volatility. But, while the potential may be there during these unusual expiration weeks, since 2009 it has not played out. The standard deviation of returns for quadruple witching expiration weeks is only 2.2% -- which is considerably less than typical weeks, with a standard deviation of returns of more than 3%.
Concentrating on December Expiration Weeks
The table on the left below shows expiration week returns so far this year. As you can see, they haven't been very good weeks for the market. Most have been negative, averaging a loss of 0.61%. However, the last two quadruple witching expiration weeks -- in September and June -- have been positive (March was the other quadruple witching expiration month in 2011).
The table on the right is a different story. It shows December expiration weeks since 2000, and you can see this has typically been a very good week for the market. In fact, nine of the last 10 are positive. Since 2000, December expiration has averaged a gain of 0.38%, and the median was 0.71%.
We've seen how the market fares during expiration week, but what about some individual stocks? Out of the 11 expiration weeks so far this year, two stocks -- Philip Morris (PM) and Cabot Oil & Gas (COG) -- have been positive nine times. Below are all optionable stocks that meet certain liquidity criteria, and have had at least eight positive expiration weeks.
Below are the stocks that you might want to avoid during expiration week. One stock, OpenTable (OPEN), has been negative in all 11 expiration weeks so far this year. The rest of the stocks on the list have only been positive once all year during expiration week.