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A Bonus Trade to Fade This Week’s Big Data, Quad Witching

by | Sep 17, 2021

As we noted Monday, this week’s volatility wasn’t driven by some impending market crash. It was being driven by Friday’s four levels of futures and options expirations, called quadruple witching. So beyond our usual weekly recap, we thought we should talk about how to trade the September 2021 quad witching.

In addition, we noted there were four economic data points to watch, any of which had the potential to push volatility higher.

Well, as it turned out, those data points printed pretty much in line.

Source: Bloomberg

Friday’s release — consumer sentiment — also failed to surprise in any meaningful direction, coming in at 71 versus 72 expected.

And volatility — as measured by the Volatility Index, or the VIX — barely even broke 21 this week. A score of 20 means average volatility (daily movements of 1% in either direction), while above 20 is above average. 

Source: Bloomberg

That’s decidedly lower than July and August’s levels of roughly 25, and continues the market’s nearly year-long streak of declining volatility spikes.

The settlement action toward Friday’s close, however, means that all of you had the chance to pick up that last quarter position in the Direxion Daily S&P 500 Bull 3X Shares ETF (NYSEArca: SPXL).

Assuming you did so, that should average the overall cost in the mid-$119 range.

Now, as I said Thursday, we wait and watch.

Fade Your Fears: How to Trade the September 2021 Quad Witching

But just as a sense check, let’s go through my method… again.

Is the market declining on increasing volume?

Source: Bloomberg

Strike one.

Is volatility rising relative to history?

Source: Bloomberg

Strike two.

And finally, is the volatility of volatility rising to make new highs?

Source: Bloomberg

Strike three! It’s just a September quad-witching week…

“Buy the dip” mode it is.

So while we’re at it, let’s throw in a free BONUS TRADE!

The mega-cap tech sector was down like crazy this week, and that gives us a chance to pick up shares of Proshares UltraPro QQQ (NYSEArca: TQQQ) at a discount.

Source: Bloomberg

If the market does indeed head higher on Monday, these behemoths will lead the way.

And we’ll be there to capitalize.

All the best,

Matt Warder

Fortune Research

WRITTEN BY<br>Matt Warder

Matt Warder

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