What Is Triple Witching Day and How Does It Impact the Market?

The trader closes the expiring position, settling the gain or loss, and then opens a new position in a different contract at the current market rate. The phenomenon on Friday is very important as the markets are still struggling to maintain the gains and the market sentiment continue to remain fragile. During the last Triple Witching phenomenon in December 2024, the markets ended higher. Whether Wall Street will continue to gain through Friday’s session is yet to be seen. Especially after fresh bout of instability gripped the stock market on Thursday. Traders ought to brace for potential volatility spikes and be on guard for unexpected market shifts.

Margin Changes on Expiration Day

Options that are in the money, that is, profitable, may mean the underlying asset is exercised and assigned to the contract owner. In both cases, if the contract owner or contract writer can pay for security to be delivered, the contract must be closed out before expiration. Triple witching and quadruple witching stand out as two key events in the financial realm. While both occasions revolve around the simultaneous expiration of diverse derivative contracts, the specifics of those contracts set them apart, influencing the market in distinct manners. Triple witching, encompassing the convergence of stock index futures, stock index options, and stock options, emerges as a standout event in the financial markets.

Afternoon: The Triple Witching Hour

• Triple witching can bring a surge in trading activity and volatility, making it a time of both opportunity and caution.
• A frequent arbitrage avenue during triple witching emerges from the price rifts between stock index futures and their inherent indexes.
• On Triple Witching Day, stock options, index options, and index futures expire simultaneously, creating a unique trading environment.
• As expiration nears, traders must decide whether to roll their positions forward into a new contract or close them out.
• The intertwining of these three facets can weave a dense tapestry of trading actions that markedly influence the market.

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What are Some Triple Witching Trading Strategies?

The Cboe Volatility Index (VIX), or “fear gauge,” stood at about 16.5 on Thursday, down from spikes in early August and September but still above its 2024 average. Today, such ideas aren’t taken any more seriously than mere superstition, but triple witching can cause chaos among investors, if they are not aware of what is happening. Importantly, not every derivative expires with the underlying stock needing to be delivered.

• If they’re exercising a long call and taking delivery on the stock, they’ll need cash or enough margin capacity to purchase the stock and may need to sell stocks to fund the exercise of the call.
• As a result, triple-witching dates are when all three types of contracts—stock index futures, stock index options, and stock options—all expire on the same day, causing an increase in trading.
• With its arrival on the third Friday of certain months, it introduces both windows of opportunity and areas of potential concern for those immersed in the financial world.
• For a market maker, at the instant that the derivatives expire, their hedge is no longer needed.
• In this situation, the option seller can close the position before expiration to continue holding the shares or let the option expire and have the shares called away.

What is Triple Witching and How Does it Affect Trading in the Final Hour?

Any references to quadruple witching are about the three types of contracts above expiring simultaneously. Trading volume on successfully outsource software development March 15, 2019, on U.S. market exchanges was 10.8 billion shares, compared with an average of 7.5 billion average the previous 20 trading days. However, in both cases, market makers need to “un-hedge.” In the case of physically delivered options, unexercised options hedges need to be closed. For cash-settled derivatives, the hedge needs to be closed out, which (in theory) should create a profit or loss that offsets the settlement cash flow. Triple witching occurs on the last Friday of each trading quarter (i.e., March, June, September, and December).

Triple Witching: Definition and Impact on Trading in Final Hour (

This is usually more pronounced in stocks with smaller market capitalizations or those that trade heavily in the derivatives market. Caution is in order since these price changes don’t often reflect shifts in the underlying company’s fundamentals. During a triple witching day, investors and traders have to decide whether to sell their options or roll them over to the next quarter. If they haven’t taken action before the end of „expiration Friday,“ the stock will typically become worthless. Though the phrase is thought to have originated with the witches in Shakespeare’s Macbeth, a triple witching day has nothing to do with spells or cauldrons and everything to do with stocks and closing bells. It is a financial term, referring to the last day of the quarter when contracts for stock options, index options, and future options all expire at the same time.

On October 19, 1987, the Dow Jones Industrial Average lost 22.6% in a single trading session. The massive sell orders were left videforex broker review unchecked by any kinds of systematic stop gaps, and so financial markets roiled globally throughout the day. This stock market crash was the greatest one-day decline to occur since the Great Depression in 1929. It’s important to understand that triple witching is a time when many traders and investors have to close or roll over their positions to avoid physical delivery of the underlying assets.

Can You Provide Historical Instances Where Triple Witching Swayed the Markets?

That represents some $5.5 trillion in futures and options expiring at the same time, writes Swissquote Bank analyst Ipek Ozkardeskaya. As a result of increased market volatility, triple witching events can sometimes create opportunities for vigilant investors and traders. But due to heightened volatility, triple witching events are also arguably riskier than other expirations. As such, market participants should be aware of triple witching to ensure they are prepared for possible high-magnitude moves, and manage their portfolios accordingly. The trading volume and volatility, or how quickly a security changes in value, is particularly high during the final hour of trading on the triple witching day. It is when the Hollywood scene of shouting and signaling on Wall Street floors is at its best, as traders scramble to settle before the closing bell.

Many hedge their positions using a combination of options and futures, employing strategies to minimize risk. These hedging activities can influence stock prices, particularly for heavily traded securities with large open interest in expiring contracts. Triple-witching days generate more trading activity and volatility since contracts allowed to expire cause buying or selling of the underlying security. The triple witching hour is the last 60 minutes of the trading day on the third Friday of March, June, September, and December, when contracts for stock index futures, stock index options, and stock options expire simultaneously.

One such event is triple witching, which refers to the simultaneous expiration of three different types of financial instruments on the same day. These instruments include stock options, stock index options, and stock index futures contracts. Triple witching occurs on the third Friday of March, June, September, and December, and it can have a profound influence on trading activity, particularly in the final hour of the trading day. During triple witching, three different types of financial derivatives contracts—stock options, stock index futures, and stock index cmc markets review options—all expire on the same day. This convergence of multiple expirations can lead to increased trading activity and volatility in the markets. Triple Witching is a significant event in the financial markets that occurs on the third Friday of certain months, typically March, June, September, and December.

The triple witching day of September 18, 2020, occurred in the midst of the COVID-19 pandemic, a time of extreme uncertainty and market volatility. The S&P 500 experienced a wild ride, initially surging over 1% before reversing course and closing down 0.5%. This dramatic intraday swing demonstrated the heightened sensitivity of the market during times of crisis. In the context of financial markets, „triple witching“ refers to a specific event that occurs on the third Friday of certain months, typically March, June, September, and December. The term „triple witching“ refers to the extra volatility resulting from the expiration dates of the three financing instruments, and is based on the witching hour denoting the active time for witches.

To avoid this, the contract owner closes the contract by selling it before the expiration. After closing the expiring contract, exposure to the S&P 500 index can be continued by buying a new contract in a forward month. Much of the action surrounding futures and options on triple-witching days is focused on offsetting, closing, or rolling out positions. On June 18, 2021, a record number—$818 billion—of stock options expired, which led to nearly $3 trillion in “open interest,” or open contracts. On this day, the Federal Reserve also announced that it might raise interest rates in 2023 due to inflationary pressures.

Call options expirein the money, that is, profitable when the underlying security price is higher than the strike price in the contract. As a result, triple-witching dates are when there’s an increase in these transactions. First, stock options on individual stocks and ETFs with a September 20, 2024 expiration date come to the end of their contract life. Investors and traders holding these options must therefore determine whether to close these positions, let them expire, or roll them to a different contract month. Equity options are physically settled, meaning exercised contracts result in the transfer of underlying shares.

However, the average volume almost doubled to 4 million on the four triple witching trading days. These news events, taken along with the S&P 500’s quarterly index rebalancing, which also happened that day, caused the S&P 500 to lose 1%. As we noted before, index rebalances also add significantly to closing auction volumes.