Hello, Is there an S&P500 rebalance this Friday? Do you know the time and what stock(s) are added or deleted?
The quarterly S&P rebalance takes place friday effective after the close. The official announcement from S&P is released wednesday after the close and available via S&P's index alert product. All the hedge funds wortj their salt have already estimated the S&P adjustments and placed their trades accordingly. This is not a game you can play after the announcement.
This isn't necessarily true. Look at Yahoo Nov 30 99 Closed at 212 Nov 30 99 after hours -- announced it would be added to S&P Dec 1 99 - open/close -- 230/228 Dec 7 99 -- added to s&p -- open/close -- 296/348 Thats over a 100 point jump after the announcement... Granted one shouldn't expect the Yahoo boost on every/any stock, but this example was used to point out what is possible just because of the S&P. As far as Yahoo went, ppl had 4 trading days to buy after s&p announcement. Theres alot of money in index funds and they all have to start rebalancing on the day its added. Yahoo is also special in a sense cuz when it was added it had a significant market cap ( ~56 billion), so the day it was added it had a significant weight in the s&p... Whats this have to do today? Well there's another internet search company, also with a huge market cap and a 200+ dollar stock that will sooner or later be added to the s&p? Am I expecting it to go up 50% cuz of the S&P? No, but I do expect it to have a decent kick. At the very least, I wouldn't want to be short goog when the s&p announcement occurs... http://finance.yahoo.com/q/hp?s=YHOO&a=10&b=30&c=1999&d=11&e=14&f=1999&g=d http://money.cnn.com/1999/11/30/companies/yahoo/
So, how can one guess at the candidate that will be added and the one that will be deleted? Is there a criteria or some rule of thumb?
GOOG June 300 calls are trading at just $0.20, one day before the rebalancing announcement. Obviously most MM's & traders don't expect GOOG to make it in this quarter.
keyser1, I have personally made millions playing S&P rebalancings. I understand the game better than anyone. It worked great until the last few years (when even the dumber hedge funds finally caught on). Now that everyone is doing it, the risk/reward is not so impressive. But you misunderstood the original question anyhow. The rebalance that takes place this friday is actually a reweighting of existing S&P stocks, and NOT a new addition to the index like YHOO in your example. In this reweighting game, you are gaming ETF's and indexed mutual funds who have access to the very expensive reweighting data (index alert). You have to calculate the reweightings yourself and then place your trades early and sell to these mutual fund guys upon the announcement.
Thank you for that clarification! I was having trouble understanding why front month GOOG OTM calls were so 'cheap'. Now it all makes sense.
I'm good for a few things, ha! This rebalance should not affect GOOG at all since it is not currently in the index. However, and I have not checked, GOOG will definitely be reweighted in the upcoming annual Russell rebalancing due to its growth in market cap. It is already a constituent, but there will be some buying preassure due to the russell.
Joe, Thanks for the clarification (I'm no s&p 500 expert)... I wouldn't imagine a rebalancing having that significant of an impact (and like you said the rebalancing can indeed be calculated by anyone before hand)... As far as additions/subtractions from the index. Do these announcements occur on random days or is there a period (like a certain day every quarter) where the announcements take place? Based on the slew of articles written about goog in the past month it seemed like no one gave a predicted date of addition other than "before the end of year" I did a yahoo search on a stocks impact from its addition to the s&p and there seemed to be a few in depth papers about it (although I have yet to read them)...Do you believe playing the s&p addition prediction game is now a thing of the past or do u still do it? Thanks, Keyser
On the topic of rebalancing, there's a fun book called Ugly Americans by the guy who wrote Bringing Down the House. It's about some guys who pull off a huge trade on the Nikkei rebalance in the 90's. http://www.amazon.com/exec/obidos/t...002-2882386-7304868?v=glance&s=books&n=507846