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Quadruple Witching does it affect the CL
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Quadruple Witching does it affect the CL

  #11 (permalink)
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squeezed View Post
lets start one right now. 6/15/2012 (quadruple witching) CL pit close: $84.02 electronic close $84.03

@squeezed: LOL.

The last traded price (close) was $ 84.18, you are referring to the settlement price of the electronically traded contract, which was $ 84.03.

The daily range of CL 07-12 on Friday was 1.38 points. The average daily range during the last 2 weeks was more than the double at 2.98 points. This shows that volatility was particulary low on Friday and that CL has not been impacted by triple witching.

If you look at the OVX, it is still higher than in april, but as high as in the beginning of June.

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@squeezed: LOL.

This shows that volatility was particulary low on Friday and that CL has not been impacted by triple witching.


my point was that volatility was low.
my question is : the fact that volatility was this low, could this be a factor caused by witching?

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squeezed View Post
my point was that volatility was low.
my question is : the fact that volatility was this low, could this be a factor caused by witching?

Triple witching is associated with high volatility as traders have to offset their positions during the final hours of trading for the expiring contracts. Technically, it cannot produce lower volatility.

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There is no absolute answer, but on the last two times I noticed it closed very close to the handle. I was learning some interesting information from some floor traders about Pin Risk . Where the price lands can change the delta from 0 to 1.00, so I think a lot of institutional money wants to lock it in around a certain round number. I am always curious to see what happens in the future. I might keep a journal....



Thursday the OCT crude contract expired.

on Thurs. OCT last traded @ 91.95 and settled @91.87

on Thurs. NOV last traded @ 92.96 and settled @92.42

Fri was quadruple witching.

on Fri. NOV last traded @ 92.96 and settled @ 92.89


There is no direct evidence to support this. The settlement prices are no where near the handle. However, the last traded prices are all very close.

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Have a look at options expiry

The main point is options expiry. Here are two examples. Options on FDAX 09-12 expired on last Friday at 1:00 PM.
FDAX was in an uptrend, but some large market participants were defending their option positions until expiry.
Look what happened afterwards.

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The crude oil options expire three business prior to the underlying futures contract.

Light Sweet Crude Oil (WTI)

The crude oil contract expired on Thursday, September 20. I would conclude that the options expired at the close of the session on Monday, September 17. Look what happened.

For CL you would look at the expiry of the CL options and not at the expiry of index options.

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The witches are option sellers....

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Fat Tails. This is very interesting. Thanks for these examples. (images always help me understand things better. )


I completely overlooked the CL options expiration entirely.


Is it safe to say:

that CL options contract expiration has far more impact on volatility and price movement than the actual expiration of the CL monthly contract?


It also seems mostly everyone is out of their position at the time of the expiration of the monthly contract and rolling over to the next, which is why it appears volatility seems to dry up on expiration.

Any association of pin risk of CL being involved with the monthly contract expiration or index options expiration seems purely coincidental.

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Last edited by squeezed; September 23rd, 2012 at 12:58 PM. Reason: grammar
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squeezed View Post
Is it safe to say:

that CL options contract expiration has far more impact on volatility and price movement than the actual expiration of the CL monthly contract?


It also seems mostly everyone is out of their position at the time of the expiration of the monthly contract and rolling over to the next, which is why it appears volatility seems to dry up on expiration.

Any association of pink risk of CL being involved with the monthly contract expiration or index options expiration seems purely coincidental.

@squeezed: I would not share all your conclusions.

There are three dates that are important

- volume rollover (Wednesday 19 October)
- option expiration (Monday 17 September)
- contract expiration (Thursday 20 September)

Option expiration increases volatility for all futures contracts that are affected. Contact expiration may only increase volatility for commodity futures, as it maybe difficult to supply them.

The CL contract is settled in Cushing. Usually there is a surplus of crude, which makes it easier for short sellers than for buyers to roll their positions. This situation is known as the Cushing contango.

But there have been a few magnificient short squeezes due to the interruption of physical supplies. The last interesting one occured on September 22, 2008, when the new front month traded about $10/bbl below the second front month. For more info see Izabella Kaminska on October 27, 2011

FT Alphaville I thought I saw a backwardation

Recently the pipeline linking Cushing to Texas has been modernized and can now be operated in both direction. This should reduce the Cushing contango to levels comparable for IPE traded Brent futures.

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I'm not sure how accurate or useful this information is, but I'd like to learn more on it if anyone knows. I read that binary options affect the price of CL towards the pit close each day, and cause it to move towards levels in 50 cent increments.

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I'm not sure how accurate or useful this information is, but I'd like to learn more on it if anyone knows. I read that binary options affect the price of CL towards the pit close each day, and cause it to move towards levels in 50 cent increments.

If options are to have an impact on crude price, this can only be the case if option volume is high enough. I personally have not heard of any exchange where binary options for crude oil are traded at high volume.

So you are probably not talking about binary options, but the option contracts that can be traded at CME. Those are American options. Those options have indeed strike prices with increments of 0.50 cts around the at the money options.

Let us have a look at yesterday's (Tuesday's) trading volume.

Options volume for Nov 12 crude oil futures: 54,947 contracts
Options volume for Dec 12 crude oil futures: 40.682 contracts
Options volume for Jan 13 crude oil futures: 11,227 contracts
Volume for Nov 12 futures: 249,911 contracts
Volume for Dec 12 futures: 63,849 contracts
Volume for Jan 13 futures: 24,084 contracts

This means that there is a significant options volume that can have an impact on prices for futures.

Although American options can be exercised at any day, if you exercise you will only get the intrinsic value and not the time value of the option, so nobody will exercise them unless they are near expiry. Therefore I cannot imagine that option prices may cause CL futures to settle near round numbers.

This relationship is only important on expiry day, as market participants with large options positions will try to defend their beefsteak, that is

-> short option holders will try to push prices up or down to make them expire worthless
-> long option holders will try to push prices to let their option be expire in the money

This battle is fought along the 50ct lines, in case that the open interest of the options trading at the money is high enough.

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