Newspaper article THE JOURNAL RECORD

Upcoming 'Triple-Witching Hour' Promises Extra Complications

Newspaper article THE JOURNAL RECORD

Upcoming 'Triple-Witching Hour' Promises Extra Complications

Article excerpt

Another ``triple-witching hour'' looms on Wall Street, with groups of stock-index futures, stock-index options and options on individual stocks due to expire in the coming week.

If some of these quarterly episodes seemed complicated and unpredictable in the past, the impending one is shaping up as especially tricky because of important changes in the rules and procedures that have been adopted by some of the markets involved.

Actually, the term ``witching hour'' no longer accurately applies. In the past, the last trading in all the expiring options and futures contracts occurred simultaneously, at the close on the third Friday of the month.

These occasions have often produced wild swings in stock prices as professional traders engaged in computer program strategies involving the options or futures and individual stocks scrambled to close out their positions.

If the majority were buying futures or options they sold earlier, and selling stocks they owned, stock prices often went into a sudden downdraft. If the circumstances were reversed, stocks sometimes surged upward.

This time around, with the strong support of the New York Stock Exchange, the settlement of some index options and futures were moved from Friday's close to Friday's opening.

The exchange argues that this is a ``practical way to deal with order imbalances which historically occur on expiration Fridays.''

The new arrangement means that the last trading in the options and futures involved occured Thursday. To complicate the situation, however, some important contracts will still settle as of the close today.

To some analysts, this raises the prospect that what had been a stormy single experience for the markets might now become what one called ``a three-time event.''

As the process moves from one stage to the next, some worry, the potential is great for whipsaw changes of direction in stock prices.

The new setup could well ``transfer volatility from Friday's close to Thursday's close without eliminating it from either the Friday opening or the Friday close,'' said Harrison Roth, an options specialist at the investment firm of Drexel Burnham Lambert. …

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