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Visavis wrote:
>
> Hello,
>
> CNBC had frequently said about TRIPLE WITHCING like this coming Friday
> which most futures/options contract are going to expire.
>
> Can somebody explain it more about what is contain in this triple
> witching issue like on how it would relate to this expiring front
> month and effect on the next month contract?
>
> Thanks!
>
At expiry, all derivatives positions transform into something different,
either cash in some markets, or into their underlying futures, or
nothing for worthless options. That leaves many books unbalanced, which
may or may not be on purpose, and some may have to rush to reset their
positions. If everyone has to reposition the same way, you get this big
violent readjustment we can witness sometimes. The more types of
contracts expire at the same time, the more potential there is for a
suddden shift in prices. Anticipation of this, is anybody's guess, and
often there is a lot of intox by traders so as to avoid revealing
beforehand what they really need to do at expiry.
Gwenn
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