The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Following the Federal Reserve's hawkish tone earlier this week, Wall Street faces a new challenge on Friday: the largest 'Triple Witching Day' in history, with $6.5 trillion worth of options tied to individual stocks, indexes, and ETFs set to expire.
What is Triple Witching?
The term refers to the simultaneous expiration of:
- Stock options
- Stock index options
- Stock index futures
This quarterly event is known for spiking trading volumes and creating sudden price swings as traders roll over their positions or establish new ones.
Historical Context and Market Impact
- December's Triple Witching: Historically, this is the most favorable for U.S. stocks. The S&P 500 has a 66% probability of rising in the week after December’s Triple Witching, averaging a return of 0.64%.
- The "Santa Claus Rally": This week marks the start of the rally, when investors traditionally go long, driving stock gains.
Why This Year is Unique
This December’s event is record-breaking:
- Largest in history: The $6.5 trillion expiring options include calls and puts, with a 2-to-1 ratio favoring calls.
- Heavyweight stocks: Key contributors include Tesla, NVIDIA, Apple, Meta, Microsoft, and Amazon, which also dominate the S&P 500.
According to derivatives expert Brent Kochuba, this concentration could amplify market volatility.
Shifting Dynamics in Options Trading
The rise of shorter-term options has diluted the impact of quarterly expirations:
- Traders can now hedge risks with daily options, making individual expirations less disruptive.
- Much of the put open interest is out of the money, limiting its influence on price movements, noted Chris Murphy of Susquehanna International Group.
What to Watch
- Santa Claus Rally: Will seasonal trends outweigh the volatility caused by the massive options expiration?
- Rebalancing of Indexes: The event coincides with the rebalancing of benchmark indexes like the S&P 500, often a driver of record trading volumes.
- Fed's Influence: With fewer rate cuts expected in 2025, traders are recalibrating their strategies, adding complexity to Friday’s moves.
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