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Barring Outside Pressures, Traders See Triple-Witch Delivering Mild Uptick

With some options traders complaining they were "bored" yesterday, just two days before a triple-witch, can investors be sure of anything? Yes. They can expect institutions to come out shooting live bullets this afternoon and Friday morning in the direction of the witches, and that


will roll out

CIBC Oppenheimer's

Michael Schwartz to tell us what it all means.

Bet the ranch. Sometime tomorrow afternoon, Schwartz, the glib front-man for the entire options industry, or maybe Chicago's flamboyant, ponytailed trader Jon Najarian, will show up like all

Magnificent Seven

rolled into one to save commentators at a loss to explain the complex variations of triple-witching's impact. The trading action, however, begins this afternoon as traders close out their positions or hedges in the

S&P 500's

(SPX) options, which settle Friday morning. The same traders who spent the last few days calmly rolling March positions into April ones will turn rabid as they watch key holdings move toward or away from a widely held position.

On the heels of March's surprising rally, the word from exchange floors is that expiration may bring a slight uptick, two or three

S&P 100

(OEX) points (comparable to a rise of about 30 points in


) or maybe a small downturn. Options strategist Kyle Rosen, who works for Southern California hedge fund

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, said the floor chatter he's heard halfway through trading today indicates "a slight push to the upside" at expiration. "Right now, the psychology of the market and money managers is more important than expiration," Rosen said. Major institutions removing their hedges could produce a dip, and depending on what other news hits the market, any move is expected to be mild, Rosen said.

Oppenheimer's Schwartz agreed but said the open interest on March S&P 500 futures contracts had fallen to 143,000 today from 319,000 a week ago, showing that traders had felt confident enough to roll their hedges ahead to the next quarterly cycle. Open interest on the S&P 500 June futures contract rose to 294,000 today from just 98,000 last week. "People have done their unwinding early so it won't come down to tomorrow," he said. "That means there will be lower volatility on Friday."

High open interest in deep-in-the-money strikes in the SPX options may create a small selling imbalance at the open tomorrow because those contracts settle in the morning as opposed to the OEX contracts, which settle at the market's close, traders said.

With the OEX at 517.37, up .50 today, a mild rise would point the market close to the 520 range tomorrow. With open interest in the March 520 calls at more than 15,000, the third highest of any OEX series, the strike may pull the market to that level, a phenomenon called pinning. "The market tends to do that with a high open interest option," Rosen said. "It tends to act like a magnet."

That level would be just fine with David Schultz from

Summit Capital Holdings

, who determined from the rally of late yesterday and the high open interest in the OEX 520 calls, that the market may land near that spot tomorrow. Schultz did warn that investors shouldn't be looking to buy the 520 calls today; they're too expensive. Picking up the 510 or 515 calls would be a less expensive alternative and provide some breathing room in a potentially tumultuous expiration.

December's triple witch -- the simultaneous expiration of stock and index options and options on index futures contracts -- came the morning after a 5.2% drop in the


and a disappointing earnings report from


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, and brought all kinds of havoc to morning trading. The three-way concerns led to a wild day, with the market down as much as 269 early before finishing up strong. This week the market is giddy,


, you might say, from pessimism and all types of bad news. "If those forces, whatever they were, resurface tomorrow, it could cause a slide. After this rally, we're ripe for a decline," Rosen said, adding that it was unlikely to being tomorrow.

It's almost strange to look back to the December expiration. At that point, for instance, the tech sector had been battered and the CBOE's volatility index (VIX) was stuck in the mid- to high-20s. These days, the VIX is dancing between 19 and 20, where it has spent the better part of two months, showing a higher degree of confidence in the market.