Triple Witching Hour

Double, double, toil and trouble, fire burn, and cauldron bubble. (the three witches chanting)
Macbeth, Act 4, Scene 1

Triple witching hour refers to the quarterly expiration of index futures, index future options and stock options on the third Friday of March, June, September and December.  This can, and often does, make for some chaotic trading as the large trading houses and hedge funds either close out their inter-related positions or roll them over to the next month. It is less messy than it used to be as the closing out is spread over the entire week and not done all on Friday as in years past. Still, it can make for some violent price swings this week. While not of much concern to the long term investor, the active trader needs to be extra cautious. This is why I recommend that all but the most experienced options traders unwind their positions by Thursday before expiration at the latest.

Combine this with the (soon to be outgoing) Fed chair speaking on Wednesday and the elections in Germany this Sunday and we have all the ingredients for a very volatile market.

Which is why it surprises me that the implied volatility indicator, VIX, is just around 14. That seems low to me given all the uncertainty as the market retests new highs. Hey, in June it was well over 20.

This tells me two things: One, buying a potential move in the stock market (straddles, strangles, etc) is a cheap speculative trade. And, two, if you want to hang on to your stock portfolio even as we're at sky high levels you can buy relatively cheap downside protection in the form of out of the money puts.

Actually, there's a third thing: Being net short option premium at these low levels with the three witches stirring the pot is a bad risk vs reward trade.