What happened in the closing auction today?

[AlterEgo]

I saw some extremely high volume, single trades going through at the close today. What could be the reason for this? For example, in MML, I noticed a single block of approx. 1.3million shares go on the ask during the closing auction, pushing the estimated close price well below the lowest price traded during the day. Now to put the size of this trade in perspective, we’re talking about a single parcel of stock that is considerably larger than the entire stock traded over the entire day up until the closing auction, and about double the average daily traded volume for this stock! Since this is approx. $7 million of stock, it’s obviously institutional volume, but why would they put this size trade on in one go instead of spreading it out over the whole day, or over several days to avoid pushing down the price? It’s as if they were intentionally trying to depress the price for some reason.

And I also noticed the same thing going on with EVN today – another, single, absolutely enormous size sell order going on in the closing auction. Check out the image below. That volume shown at 162 ($1.62) is the volume traded at the close. Compare the size of that volume bar to the volume traded at all the other prices during the day! I thought the idea was to trade in small enough parcels so you don't move the market, so why would they do this?

 

[nulla nulla]

Yesterday was the third Thursday of the month, which is typicaly the closing day for some option trades. Some parties need to buy and some need to sell and the prices can jump/fall significantly. Additionaly it was also the last day to acquire several A-REIT's before they went ex-div and some shorters probably had to close out their positions. Accordingly some prices soared on Thursday only to crash on Friday. If you have done your own research, you were probably able to take advantage of some of the closing prices today.

 

[AlterEgo]

Ok, thanks nulla nulla. Yeah, I loaded up on a few things today.

 

[skc]

Today was S&P rebalance on close.

As to why the fund managers do it on the close in one hit? Who knows? Crazy or lazy would be my guess.

 

[Joules MM1]

Today was S&P rebalance on close.

As to why the fund managers do it on the close in one hit? Who knows? Crazy or lazy would be my guess.

i'd like to know the answer to that too......

date and time for dividend elligibilty....?

 

[AlterEgo]

Today was S&P rebalance on close.

As to why the fund managers do it on the close in one hit? Who knows? Crazy or lazy would be my guess.

Thanks, that would explain it.

 

[skyQuake]

what do MML and EVN both have in common? Hint: its not S&P in their case

 

[pixel]

Today was S&P rebalance on close.

As to why the fund managers do it on the close in one hit? Who knows? Crazy or lazy would be my guess.

The rebalancing isn't so much of an issue, because the fundies have had plenty of time to get set; after all, S&P made the announcement who's in and who's out several weeks ago. (That aside, this quarter's crop was really small, from memory: a couple in, a couple out - nothing major.)

The unusual thing today (actually: yesterday, Thursday the 20th) has been double option expiry.
In normal months, Index (XJO) options expire on the morning of the third Thursday, whereas Exchange-traded Stock options expire at Close of the Thursday before the last trading Friday. (Sounds complicated, so read it slowly, or check the ASX calendar ;-) ) Suffice it to say: 11 times out of 12, they're different Thursdays.

Due to Christmas, both kinds of options expired on the same day - only 6 hours and 10 minutes apart.

Now - The key level of the XJO is determined by the opening trades of its constituents, the result determines, which index options (Puts/ Calls) will be paid out to holders and at what rate, and which options will expire worthless, allowing the writers to pocket the premium. Conflicting interests of writers and holders mean that the index will be moved up or down in the morning - and that can be done most easily by moving the biggest constituents a few cents up or down at Open.

Same thing, but on an individual stock scale, happens in the closing auction to all those shares that have options written against them. For example, OZL had a huge overhang of Puts at the $6.90 level. Had the Close been at or below $6.90, the writers would have been obliged to accept more than 2.6M shares being "Put" to them at $6.90. APparently, they weren't keen on the idea, so the "arranged" a Close at $6.91, which meant they could keep the premium and didn't have to buy all those shares at $6.90.
That told the experienced observer that OZL was probably sufficiently unloved and would be allowed to fall back again come Friday. Which is precisely what happened.

A similar push happened with BHP: It closed high, so practically all Calls could be exercised, meaning the writers could sell stock for up to $37. And again, it was sold down the next day. Mission accomplished.

As regards the other stocks that are not optionable: In the early part of the day, fundies, who had an excess of Puts to accept, were happy to keep the general market high until they had sold those shares at a reasonably high price - remember that they had already raked in the premium when they sold the Puts. Once that was accomplished, around mid-day, out came the "news" that the US may fall off the cliff - and the Market was generally sold-off. Some individual stocks, even smaller ones without options, would have been dribbled out all afternoon; but when the seller still had a big parcel left, that would be dumped before Year End to avoid the holiday lull. The EVN seller may well be anticipating a further drop of the price of gold, making EVN - in their opinion - unprofitable; hence the late sell-off of a few Million left-overs. A similar reason may likely apply to MML.
(btw, Index Balancing can't apply to EVN because they were added to the ASX200 in March this year.)

 

[nulla nulla]

Thank you Pixel. Members should save your post to a word document, print it out and watch the timetable (ASX) for similar events in the future that may impact the price movement of their shares.

 

[DocK]

The unusual thing today (actually: yesterday, Thursday the 20th) has been double option expiry.
In normal months, Index (XJO) options expire on the morning of the third Thursday, whereas Exchange-traded Stock options expire at Close of the Thursday before the last trading Friday. (Sounds complicated, so read it slowly, or check the ASX calendar ;-) ) Suffice it to say: 11 times out of 12, they're different Thursdays.

Sometimes I really wish this forum had a "like" button for a post - it's posts like yours that add so much value to the forum and allow others to learn. Thanks for taking the time to explain.

 

[pixel]

Thank you Pixel. Members should save your post to a word document, print it out and watch the timetable (ASX) for similar events in the future that may impact the price movement of their shares.

Hey guys,
I'm glad if I can help;

About those "similar events": The most important ones are the quarterly index options, i.e. the 3rd Thursdays in March, June, September, and December. You will notice that the volumes of option series expiring on those days are particularly high, as are the subsequent volumes of share trades. The Quarterlies are used to calculate bonuses, rankings between fund managers, and a whole swag of other things that are "important" enough for big players to manipulate the levels to best suit their interests.

On those four days, the opening stagger (time delay between groups opening) is also doubled: Instead of starting at around 10:02:15, Group 2 match-out begins at 10:04, Group 3 at 10:08, etc. The cynic will say that's because the big players need more time to calculate, at which price the biggest shares must open for the XJO strike to be manipulated to the "right" level.

When those rules were introduced decades ago, computers were much slower than today; but old habits die hard. Nowadays, it would of course be just as easy to simply grab the stats and levels of the last day of each month or quarter and be done with it.

 

[nulla nulla]

Thanks for both posts Pixel. We were aware of the monthly timetable but not the logic behind the quarterly plays. This month we noted the timing of the third thursday coinciding with the day preceding exdiv dates for the a-reits. Accordingly we structured a few trades in the weeks leading up so we were well positioned to take advantage of any spikes if they happened. On Thursday we closed out some entries in CPA, IOF and SGP taking profits greater than the proposed distribution and re-entered CPA & IOF on the Friday lows. Unfortunately SGP did not fall as much on Friday as expected (but there is always next week )

 

[pixel]

Thanks for both posts Pixel. We were aware of the monthly timetable but not the logic behind the quarterly plays. This month we noted the timing of the third thursday coinciding with the day preceding exdiv dates for the a-reits. Accordingly we structured a few trades in the weeks leading up so we were well positioned to take advantage of any spikes if they happened. On Thursday we closed out some entries in CPA, IOF and SGP taking profits greater than the proposed distribution and re-entered CPA & IOF on the Friday lows. Unfortunately SGP did not fall as much on Friday as expected (but there is always next week )

Thanks for explaining the REITs, nulla-nulla;

Although I'm aware of their quarterly distribution, I hadn't paid much attention to them as I'm more of a day trader, less of a dividend stripper. Seems an old cat can also learn new tricks

As a picture offers the best explanation, I've prepared this self-explanatory chart; as it needed a full year's DAILY ticks, I had to make it full-screen HD.

 

[skyQuake]

Biggest factors on friday were S&P rebal (most of it was pre-traded), and Market Vectors rebals: that cause the majority of the skews in the goldies - RED, IGR, MML, EVN, SBM, KCN etc etc

 

[nulla nulla]

Thanks for explaining the REITs, nulla-nulla;

Although I'm aware of their quarterly distribution, I hadn't paid much attention to them as I'm more of a day trader, less of a dividend stripper. Seems an old cat can also learn new tricks

As a picture offers the best explanation, I've prepared this self-explanatory chart; as it needed a full year's DAILY ticks, I had to make it full-screen HD.

View attachment 50077

Actually the only one I know of that still does quarterly distributions is GPT. The other ones mostly do six monthly. If I stay in for a distriution I will have bought at what I feel is a low price and I will hold after the distribution for a rebound above the entry price to get a capital gain as well.

 

[pixel]

Actually the only one I know of that still does quarterly distributions is GPT. The other ones mostly do six monthly. If I stay in for a distriution I will have bought at what I feel is a low price and I will hold after the distribution for a rebound above the entry price to get a capital gain as well.

Slightly off-topic, sorry: My list may be dated, and contain more than REITs.
I have AGG, MGR, CUP, GEM, HDF, IOF, GPT, CMW on my divi list with more than two per year.

 

[nulla nulla]

Slightly off-topic, sorry: My list may be dated, and contain more than REITs.
I have AGG, MGR, CUP, GEM, HDF, IOF, GPT, CMW on my divi list with more than two per year.

IOF is fefinitely back to two (2) distributions per year. Latest was $0.0875 per share (ex-div 21/12/12 payable 28/3/13) and next one will be June 2013.

We also monitor the price movement of some of the larger institutions like banks, wow, tls where the annual divs and franking are close to 10% (depending on the price at any given time). The 45+ days holding rule to obtain the franking makes the timing of the entry/exit important. Getting combinations of dividend, franking and capital gain on the trades makes the return on equity far better than bank rates.

 

[skc]

Biggest factors on friday were S&P rebal (most of it was pre-traded), and Market Vectors rebals: that cause the majority of the skews in the goldies - RED, IGR, MML, EVN, SBM, KCN etc etc

What's market vectors balance? Who makes the calls there?

Now - The key level of the XJO is determined by the opening trades of its constituents, the result determines, which index options (Puts/ Calls) will be paid out to holders and at what rate, and which options will expire worthless, allowing the writers to pocket the premium. Conflicting interests of writers and holders mean that the index will be moved up or down in the morning - and that can be done most easily by moving the biggest constituents a few cents up or down at Open.

I don't follow options much but what is the relative size of options market vs the cash for a stock like say OZL?

The payout for OZL's put is linear so the option writer spending money on the cash to push it up (to avoid the put being exercised against them) may or may not be more profitable overall, especially considering that whoever bought up the shares will need to sell them the following day.

Can you offer an example where it is very obvious that such a play is profitable? Thanks.

As I am a pair trader I just love index and option expiry dates. You get funny prices that offer low risk divergent entries or outsized profits on exits. It's the best way to capitalise on these spikes and I tend to carry many pairs going into expiry. Except for the Dec expiry as I tend to be winding down my trading already.