Selling pressures from sophisticated, billion-dollar futures trading by large institutions eased yesterday as Wall Street braced itself for a new selling wave Friday, when September contracts for stock-index futures and options expire.
Stocks rallied slightly yesterday, with the Dow Jones average of 30 industrials rising 2.24 points, back up over the 1,300 mark to close at 1,300.40. The closely watched average plunged Tuesday by 10.98 points, to 1,297.38, its lowest level since June 19.
The New York Stock Exchange composite index added 0.11, rising to 105.00. Standard & Poor's 500-stock index rose 0.35 to 181.71.
After a seesaw day, which saw the Dow Jones industrial average off 8 points during morning trading, blue-chip stocks moved to higher ground, along with technology, food and airline issues.
Market analysts were uncertain how heavy the selling pressure might be today and Friday, the expiration date for futures contracts on the Standard & Poor's 500-stock index. The index is used for programmed investment strategies by large investors. A June 21 expiration date produced a 25-point gain; other spates of "program" buying or selling have produced major one-day gains or losses. However, many of the contracts expiring Friday already have been sold.
Stanley Shopkorn, managing director of Salomon Brothers, one of the major brokers in the financial futures market, estimated that there was still $300 million to $400 million in "baskets" of stocks to be sold before the expiration on Friday.
That's what remained, he said, of the estimated $2.5 billion that had been invested in the baskets when the selling began about three weeks ago.
Whether there will be a big flurry of selling on Friday is uncertain, Shopkorn said, because so many of the baskets already have been sold. Investors, Shopkorn said, are not rolling over their September futures contracts to December because the gap between the price of the December index and the "baskets" was so small -- only about 1.09 percent yesterday -- that "nobody will come in." The spread will have to expand to about 2.10 or 2.30, he said, before interest will be renewed.
To accomplish that, he added, the market will have to show some upward movement and that will depend, in large measure, on investors changing their current outlook on market conditions. For that to happen, he noted, there will have to be some good economic news first.
Buying "baskets" of stocks is part of the strategy used by financial institutions to take advantage of the difference, or "spread," between the price of a futures contract on the S&P 500 index and the value of the stocks in the S&P 500. To play the game, the investor buys a "basket" of the same stocks that make up the S&P 500. The investor then sells or "shorts" a number of futures contracts that are the equivalent of his basket.
The investor is protected, whichever way the market goes. If the prices of the stocks in the basket go up, it would be matched by a loss on the futures. On the other hand, a loss in the stocks would be accompanied by a gain on the futures. The investor, however, must "unwind" his position by the expiration date of the futures contract, which would mean, in this case, buying futures and selling stocks.
The investor makes his money from the difference between profit and loss on the stocks and the futures. If stocks have risen, his profit will be the difference between gain on the stocks and the loss on the short position. If stocks have fallen, the profit will be the difference between the gain on the short position and the loss on stocks. The investor also gets to keep the dividends paid on the stocks during the time they were held.
On the trading floor yesterday, Portland General Electric was the most active NYSE-listed issue, off 1/8 to 19 1/4. Commonwealth Edison followed, up 1/4 to 29 1/2.
IBM was third, up 3/4 to 127 1/2. Other rising technology issues included Digital Equipment, up 3/8 to 104 7/8, Burroughs, up 3/8 to 63 1/8, Honeywell, up 1 to 63 1/8, and Control Data, up 1 1/4 to 18 7/8.
Among actively traded blue chips, American Express lost 5/8 to 40 5/8. General Motors lost 1/4 to 67 3/4.
AT&T added 1/4 to 20 7/8. It will eliminate 900 jobs at a plant in Allentown, Pa.
Westinghouse Electric Corp. rose 7/8 to 38 1/4. It will close a plant near Pittsburgh that makes power circuit breakers but will continue to market the product through a joint venture with Mitsubishi Electric Co. of Japan.
Richardson-Vicks lost 1 1/8 to 49. Late Tuesday, its board rejected as inadequate an improved takeover bid from Unilever and announced distribution of new preferred stock to discourage the $1.35 billion offer.
Food stocks were some of the session's biggest gainers. General Foods' climb of 3 3/8 to 88 3/4 made it the day's biggest winner. Pillsbury followed, adding 3 1/4 to 57 3/4.
Merck, the day's biggest loser, fell 2 7/8 to 107 7/8. UpJohn added 2 5/8 to 103 3/4.
After dropping Tuesday, airlines were mixed. AMR Corp., parent of American Airlines, rose 1 to 40 3/4. UAL added 3/4 to 49 7/8, Northwest Airlines 7/8 to 55 7/8, and Eastern Airlines was unchanged at 9 1/8.
Media issues were mixed. CBS lost 1 3/4 to 111 1/2, Harcourt Brace Jovanovich added 1 7/8 to 53 7/8. Macmillan climbed 1 5/8 to 28 5/8. Viacom rose 1 3/8 to 44 1/8.
Frontier Airlines led the actives on the American Stock Exchange, rising 7/8 to 17 3/8. Texas Air followed, up 1/2 to 16 1/8.