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Flip-Flop Day

Today is flip-flop day. I’m not talking about shoes you’d wear to the beach, I’m talking about the day when the front month of the S&P futures contract moves from December to March. Any of you who are players in the futures market on a day-to-day basis know that on flip-flop day, there’s a lot of liquidity going from one place to another.

If you’re not a regular trader of futures, you might not realize how much liquidity we’re talking about here. And when I tell you, it might surprise you. The total dollar amount in futures and options replicating the stock market—what we call synthetic positions—is $250 billion dollars. That’s a lot of liquidity.

Next Friday, of course, is the big quadruple expiration—the day when all those December contracts that aren’t rolled over into March expire. As we’ve discussed before, expiration is the best and easiest time for people who have large positions to get in and out of the market. And when big positions like this move, it leaves large footprints that are felt indirectly throughout the marketplace.

Flip-flop day is a nuance, and it’s one of those things that’s easy to overlook—especially if you’re not trading the futures. (Not trading futures, incidentally, could actually be doing a great disservice to your portfolio and your bottom line—especially if you’re using ETFs to replicate certain commodities. Sign up to receive my white paper, “The Five Biggest Reasons Investors Should Look at Futures"—opt-in is for regulatory purposes only!) It’s what I call simple homework, but that doesn’t mean it can’t catch you unprepared. I remember one time back when I was still on the floor and I neglected to do some simple homework. I ended up coughing blood to the tune of about $50,000. An expensive lesson, but one I’ll certainly never forget.

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The Market Belle and I discussed earnings and the multiple on earnings quite extensively on today’s podcast. I’ve written about this a lot here on the blog, but if any part of that or any other conversation was unclear, definitely drop me an email or pass it along through  Facebook or Twitterwe’ll be sure to address it on the show as soon as we can!

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