September Quarterly Options Expiration Treacherous, Week After Awful

Since the S&P index futures began trading on April 21, 1982, stock options, index options as well as index futures all expire at the same time four times each year. Some call it Quadruple Witching or Quad Witch due to single-stock and ETF futures however, their impact on the market appears subdued to us and we continue to prefer using Triple Witching.

September’s quarterly option expiration week has been up 56.1% of the time for S&P 500 since 1982. DJIA and NASDAQ have slightly weaker track records with gains 51.2% of the time and 53.7% of the time respectively.

However, the week has suffered several sizable losses. The worst loss followed the September 11 terrorist attacks in 2001. In the last twenty years, S&P 500 and NASDAQ are tied for best record during September’s quarterly option expiration week, up thirteen times, but NASDAQ has been down the last five straight. Friday had been firm with all three indices advancing every year 2004 to 2011, but S&P 500 has been down ten of the last eleven since.

S&P 500 Down 26 of 33 Week After September Quarterly Options Expiration, Average Loss 1.01%

The week after September options expiration week, has a dreadful history of declines most notably since 1990. The week after September quarterly options expiration week has been a nearly constant source of pain with only a few meaningful exceptions over the past 33 years. Substantial and across the board gains have occurred just four times: 1998, 2001, 2010 and 2016 while many more weeks were hit with sizable losses. Last year DJIA and S&P 500 declined over 4% while NASDAQ fell 5.07%.

Full stats are the sea-of-red in the tables here. Average losses since 1990 are even worse; DJIA –1.07%, S&P 500 –1.01%, NASDAQ –0.98%. End-of-Q3 portfolio restructuring is the most likely explanation for this trend as managers trim summer holdings and position for the fourth quarter.