The Dow Jones industrial average fell more than 11 points Friday, but the big news was that it didn`t fall more.
The much-feared ”triple witching hour”–the quarterly event when stock index futures, stock index options and individual stock options expire simultaneously–came and went without the wild stock market gyrations that have characterized previous witching hours.
The Dow industrial average, which was down about 4 points with an hour of trading left, finished the day off 11.67 at 1762.51. Declining issues narrowly led advances.
Volume totaled 153.86 million shares, an amount analysts said didn`t indicate heavy activity by program traders involved in sophisticated triple-witching strategies.
In other markets, gold soared more than $18 an ounce, to $436, on the Commodity Exchange in New York, its highest level in 3 1/2 years, while the dollar continued to decline against major foreign currencies. The drop was severest against the Japanese yen, reaching a post-1940s low of 151.95 to the dollar.
The witching hour has assumed increasing importance as more and more institutions have employed sophisticated arbitrage trading schemes that involve taking simultaneous positions in stocks, futures and options in an effort to take advantage of price discrepancies among the various markets.
Often those strategies have resulted in large blocks of stocks being either bought or dumped on the stock market in the final minutes before expiration of the futures and option contracts.
But it didn`t happen Friday.
”There were no big imbalances, no real big volume, no real big anything,” said Courtney Smith, director of futures trading at Twenty-First Securities Corp. in New York.
One reason may have been that many traders previously got out while the getting was good last Thursday and Friday amid the stock market`s 86-point tumble.
At that point, many stock index futures contracts traded below the cash market, giving arbitragers the opportunity to trade out of their stock positions at unusually high profit.
John Wolff, manager of the stock index department at Donaldson Lufkin & Jenrette, noted that most stock index futures traded at a discount to the cash market for much of the day. ”The only thing the futures allowed was more sell programs, and there just weren`t many left,” he said.
Another reason may have been that, in an effort to curb stock market volatility, the Securities and Exchange Commission and the New York Stock Exchange for the first time told brokerage firms to disclose at 2:30 p.m. Chicago time the orders they had been instructed to place at the close of the market for any of the 30 stocks in the Dow Jones industrial average. By doing so, it was hoped that any order imbalances could be corrected before the stock market`s close. In addition, no market-on-close orders were accepted after 2:30 p.m.
While the market did prove less volatile, both the SEC and the stock exchange said it was too early to tell if the one-time disclosure was responsible.
”There was not a lot of movement at the close,” said Robert Birnbaum, NYSE president. ”Whether it was due to the experiment or what was happening in the market, I don`t know.”
