Surging Volume Deluges NYSE as Witching Day Caps Turbulent Week

(Bloomberg) -- Equity traders battered by the worst sell-off since the global financial crisis are enduring a surge in volume Friday as futures and options on indexes and individual stocks expire.

The S&P 500 rebounded from a two-day slide, with the number of shares changing hands as of 10:45 a.m. in New York almost triple the 30-day average. The spike comes after Thursday’s session saw the busiest day of the year when more than 12 billion shares traded on U.S. exchanges. An average of 10 billion shares moved in the first four days of the week, putting it on track for the busiest pre-Christmas period since at least 2008.

Friday should cap the week with another huge day amid an event known as “quadruple witching.” It takes place every quarter and normally coincides with the rebalancing of the S&P 500 Index, spurring price swings and increased trading volume.

The turbulence, which tends to cluster around the market open and close, is adding another layer of uncertainty in a market where traders are already on edge. Quadruple witching weeks tend to be extremely volatile as large derivative positions are rolled over. Since 1990, the S&P 500 has swung 3.1 percent during the witching week, almost twice the average for all periods, data compiled by BMO Capital Markets show.

On the bright side, the potential increase in volume may help market liquidity as trading tends to slow heading into the holiday season, according to Stephen Carl, a trader at Williams Capital Group. The market is scheduled to open for half a day on Monday before closing for Christmas.

“You don’t want to catch a falling knife, but you have people contemplating valuation,” Carl said by phone. “If you need to unload or take positions, it’s certainly a helpful opportunity that may not be there Monday.”

Heading into Friday, the S&P 500 has fallen deeper into its second correction of the year. Down 15 percent from the start of October, the index is at the lowest level since September 2017 and is on track for its worst quarter since 2008. It rose 0.9 percent Friday.

From the Federal Reserve to U.S.-China trade tensions and fears for global growth, there’s no shortage of culprits for the equity sell-off. What may have compounded the damage is a lack of liquidity, where a stock’s price can be easily swayed by a buy or sell order.

A measure of liquidity for single stocks has fallen 42 percent over the past year to hover near the lowest level since the global financial crisis, while the gauge for S&P 500 futures tumbled 70 percent to a decade low, Goldman Sachs strategists wrote in a note this week.

But volume will pick up, at least for a day, if history is any guide. Last time “quadruple witching” and an S&P 500 rebalancing took place, on Sept. 21, almost 11 billion shares changed hands, 71 percent above the average in the previous three months.

This time, the rebalancing could force $23.9 billion of trades, up from around $19.7 billion a year ago, S&P Dow Jones estimated on Dec. 16.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Richard Richtmyer, Jeremy Herron

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