Gas-lamp guttering before the wick needs trimming

The figure arrived on a Thursday - the bulletin from the quant desk reporting a 0.35 percent average return premium across equity index expiration weeks, significant at conventional levels. Reading it at my desk, with a gas-lamp guttering the way it always does before the wick needs trimming, I found the number easy to admire and impossible to question properly. That is the difficulty worth recording here: the answer came cheaply; the question did not come at all.

Consider the triad. Here is the sign - the premium itself, 0.35 percent, repeated across expiration weeks. Here is the object - whatever real economic activity produces it, presumably the hedging flows of option writers as the contracts approach settlement. But the interpretant is missing. I do not yet know how to ask the question whose answer the premium would be. Is it a question about hedging mechanics? About the timing of index rebalancing? About whether the sample contains weeks that were, historically, already biased toward rising markets for reasons having nothing to do with options at all? Each candidate question would generate a different deduction, and I cannot yet rank them.

The beginner’s confession: I believed finding answers was the hard part of inquiry, answers being the things one is graded upon. But the answers are the easy terminations. An answer terminates; a question opens a fork in the road of inference, and choosing the right fork requires knowing the country better than I do. The abductive stage demands a hypothesis that, if true, would make the premium unsurprising - but generating hypotheses is not a mechanical operation, and the bad questions are far more numerous than the wrong answers, because a wrong answer can at least be tested to death while a badly formed question quietly survives every test by never being subjected to one.

What observable consequence would distinguish gamma-hedging pressure from mere calendar coincidence, I cannot yet say. That is precisely the measure of my ignorance, and I intend to sit with it rather than paper it over with significance levels.

Note to the student Jensen: bring the expiration dates for the full sample to Thursday’s session - I want to see whether the premium survives when we condition on weeks of high open interest, and I would rather discover my question was wrong than never have one.