In a rare occurrence, U.S. markets are closed today, and possibly tomorrow. My first reaction when I heard this is that the second half of the week could be quite hectic. Oct 31st, on Wednesday, will the last trading day of the month. More importantly, it’s the last trading day of the fiscal year for many mutual funds. They have been gradually rebalancing their portfolios into that date, but the storm closure takes away 2 potential trading days to get their books in order for Nov 1st.
My second thought harkened back to my market-making days. When you had an unexpected market closure of this type, you always hoped your were “collecting decay” as opposed to “paying decay” (check our education section for more insight on the discussion that follows). In other words, as an options market maker, you always carry a large inventory of long and short options. You usually “delta hedge” that portfolio at the end of each day. If you were broadly short options (collecting decay), you hope for limited volatility, and if you were broadly long options (paying decay), you hope for extensive volatility on any given day. Well, with the markets closed for 1-2 extra days, short option portfolios have 1-2 fewer days to worry about any big moves. Sometimes better to be lucky than good.
- Risk-off has been the general theme, but most Asian markets traded close to flat. Korea was a big exception, down almost 3%
- Europe has traded in the red since the open, down 0.5-1%. Spanish retail sales were down 11% year-over-year, part of the steady drumbeat of bad news on the Spanish economy.
- SPX futures are down 9 points, but trading above the all-important 1395 level. That corresponds to the 1400 level in SPX cash, and will be a battleground level for the next week. SPX futures close at 9:15 AM EDT today.
- The dollar and Treasury bonds are broadly stronger, and commodities broadly weaker, in very light trading.