With this Friday's Quadruple Witching ( contracts for stock index futures, stock index options, stock options and single stock futures all expire ) right around the bend , investors should take advantage of the week's volatility in "closing out " In-the-money positions and begin rolling them into new October , November and December positions .
The phenomenon of a Quad Witching has sometimes been referred to as "Freaky Friday" as it leads to many counter trends throughout the week leading into the final day of expiration . Aggressive accounts , usually hedge funds , proprietary trading desks and commodity funds are the most active players during this period and they need to weigh and rebalance their portfolios as certain positions come to a close . As they step up their activities , they try to " play " the diminishing option and futures premiums , yet tend to all rush out the exit at the same time . This action brings on severe swings in price and leads to some dislocations.
In taking advantage of this week we should focus on Implied Volatility and judge whether or not a stock's options and futures are priced appropriately for a "roll" or if the positions should be allowed to expire .
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