Trading in The New York Stock Exchange (NYSE) surged to a record 3.15 billion shares as derivatives expiration and changes in the Standard & Poor’s 500 Index lifted volume to more than double this year’s average.
Yesterday was the last day of trading for December futures and options on US indexes and stocks. The expiration, a quarterly event known as “quadruple witching,” boosts volume because investors and dealers must buy and sell stocks and derivatives to move positions into future months and make corresponding trades to hedge, or cancel out, their risk of loss. Visa Inc was among five companies that joined the S&P 500 yesterday, forcing funds that track the index to buy shares.
US trading has slowed as the S&P 500 rebounded from a 12-year low in March, with average monthly volume falling 36 per cent. Fewer than 7.87 billion shares changed hands each day on US exchanges during November, the lowest month average since August 2008, Bloomberg data show. Analysts including Mary Ann Bartels at Bank of America Corp say the slowdown in volume was a bearish sign following the S&P 500’s 63 per cent surge.
“There’s been a lot of inactivity on the part of mutual fund investor and that’s translated into low volume,” said David Goerz, who oversees $17.5 billion as chief investment officer at Highmark Capital Management in San Francisco. “What they’re waiting for is some evidence that the economy is recovering, and that evidence is clear at this point.”
Lehman’s collapse
Trading at NYSE, the world’s biggest stock exchange, beat the previous record of almost 3 billion shares on September 19, 2008, a quadruple witching day at the end of the week when New York-based Lehman Brothers Holdings Inc filed for the biggest-ever bankruptcy. NYSE volume this year has averaged 1.39 billion shares a day.
Futures are agreements to buy or sell a specific amount of a commodity or security at a specific price and time. Options give the right though not the obligation to buy or sell a security at a set price and date.
Investors use options to guard against fluctuations in the price of securities they own, speculate on share-price moves or bet that volatility, or stock swings, will increase or decrease.
