Given the increased volatility during triple witching, strategies that benefit from large price movements are often favoured. The risk of loss in online trading of stocks, options, futures, forex, foreign equities, and fixed income can be substantial. Before trading, clients must read the relevant risk disclosure statements on IBKR’s Warnings and Disclosures page.
SPX’s daily range expanded nearly 7% on triple witching days, and the average percentage return was -0.72% lower than the daily average. Option traders may find triple witching to be particularly attractive because of the huge potential swings that can occur in options prices, much greater than what occurs to a typical stock or index. On this day, all expiring stock options are zero-day options, so they have little time value remaining and therefore even modest stock moves could make the right options very profitable. If a large number of traders and investors decide to close out their positions at the same time, it can create a sell-off in the market.
These opportunities might be catalysts for heavy volume going into the close on triple-witching days as traders look to profit on small price imbalances with large round-trip trades completed in seconds. The phenomenon of triple witching has left an indelible mark on financial markets time and again. By delving into historical instances, we can glean insights into its potent influence on market turbulence. Parallelly, arbitrage scopes between stock index options and their component stocks beckon. Disparities between an index option’s valuation and the combined rates of its integral stocks can be capitalized upon by engaging with the undervalued facet and relinquishing the inflated one. Triple witching occurs on the last Friday of each trading quarter (i.e., March, June, September, and December).
However, derivatives’ expiry isn’t the only thing that happens on the third Friday of every third month of the quarter. Indexes like the S&P, FTSE also adjust their values on this day (with the exception of Nasdaq 100, which does its annual rebalance only on the third Friday in December). It’s worth noting that the How to buy catcoin pandemic did not help the market volatility either, so this tremendous fall in value is attributed to that as well.
Why Does Trading Volume Tend to Spike During the Witching Hour?
It’s worth noting that in some years, there might be slight variations due to holidays or other market events. Some of the most turbulent days in the stock market have coincided with Triple Witching, such as in 1992 when sell-offs in IBM, General Motors, and other blue chips led to a significant market decline on a Triple Witching Friday. For you as an equity investor, it’s statistically favorable to buy this particular stock close to the end of a Triple Witching Day. You can use this effect as a trader, but also as a long-term investor, to improve your entry timing. Today I will try to unravel the enigma behind this event, its impact on the stock market, and the seasonal nuances accompanying it.
Triple witching, with its nuanced influences on markets, is nothing short of captivating. Its touch extends beyond mere volatility, molding overarching market dynamics. Triple witching occurs when three types have expiry dates scheduled for the same day. Typically, this phenomenon occurs on the third Friday of the last month in a quarter. I have been sharing insights about the markets, proven strategies, what works, what doesn’t and many powerful trading ideas.
How do you trade the triple witching hour?
On the expiration date, contract owners can decide not understanding forex quotes and currency pairs to take delivery and instead close their contracts by booking an offsetting trade at the prevailing price, settling the gain or loss from the purchase and sale prices. For example, one E-mini S&P 500 futures contract is valued at 50 times the value of the index. If the S&P 500 is at 4,000 at expiration, the value of the contract is $200,000, the amount the contract’s owner must pay if the contract expires. Traders ought to brace for potential volatility spikes and be on guard for unexpected market shifts.
How Triple Witching is Different from Quadruple Witching
Central to the essence of triple witching is its alignment with stock options’ expiration. These contracts, which bestow holders with the right (minus the compulsion) to either procure or dispose of a stock at a preset rate, nudge traders and investors to seal, action, or transition their stances as the expiration looms. Such maneuvers can spark pronounced volatility, with the market swaying in response to the abrupt jostle in demand and supply dynamics. As one part of triple witching, traders are closing out or exercising their stock options. For example, traders may be closing options positions, selling to close a long contract or buying to close a short contract. If they have a hedge on these positions using stock, they may also be simultaneously unwinding that hedge, buying or selling the corresponding stock as appropriate.
How Does Triple Witching Impact the Stock Market?
As options and futures contracts expire, traders must close or roll out their existing positions to a future expiration date. Triple Witching occurs because the expiration dates for stock options, stock index futures, and stock index options all fall on the same day. Stock options give the holder the right to buy or sell a stock at a specific price on or before the expiration date. Stock index futures allow traders to bet on the future direction of a stock index. Stock index options give the holder the right to buy or sell a stock index at a specific price on or before the expiration date.
- The activity during monthly witching hours is related to rolling out or closing expiring contracts to avoid the expiration and having to buy the underlying asset.
- By delving into historical instances, we can glean insights into its potent influence on market turbulence.
- Some of the most turbulent days in the stock market have coincided with Triple Witching, such as in 1992 when sell-offs in IBM, General Motors, and other blue chips led to a significant market decline on a Triple Witching Friday.
- The intertwining of these three facets can weave a dense tapestry of trading actions that markedly influence the market.
Triple witching is the third Friday of March, June, September and December. In 2023, Triple Witching occurs March 17, June 16, September 15, and December 15. For the week atfx trading platform leading into the triple-witching Friday, the S&P 500, Nasdaq, and the Dow Jones Industrial Average (DJIA) were up 2.9%, 3.8%, and 1.6%, respectively.
Triple witching is the simultaneous expiration of important options and futures contracts on the third Friday of March, June, September and December. This event can cause increased trading activity and volatility on exchanges as traders close out contracts or prepare to exercise them. The primary reason for the increased action on witching-hour days is that if the contracts are not closed before expiration, that could mean having to buy or sell the underlying security.
