due_logo
Search
Close this search box.

Table of Contents

Triple Witching



Definition

Triple Witching refers to the quarterly expiration of stock options, stock index futures, and stock index options contracts all on the same day. This event typically occurs on the third Friday of March, June, September and December. During these days, market volatility can increase as traders adjust or close out their positions.

Phonetic

The phonetics of “Triple Witching” would be /ˈtrɪpəl ˈwɪtʃɪŋ/.

Key Takeaways

  1. Increased Volatility: Triple Witching refers to the quarterly expiration of stock options, stock index futures and stock index option contracts all on the same day. This confluence often results in increased volatility in the market due to higher trading volumes.
  2. Market Efficiency: Despite speculations, Triple Witching is seen as a major part of modern markets’ efficiency. It creates a surge in trading volume nearer to closing on that day, as traders close, roll out or offset their positions.
  3. Rare Occurrence: It only happens four times a year, on the third Friday of March, June, September, and December. The occurrence of Triple Witching can disrupt usual market trends, therefore, traders need to be aware and prepared.

Importance

Triple Witching refers to a significant event in financial markets that happens four times a year, namely on the third Friday of March, June, September, and December. During this event, three types of financial contract instruments – stock index futures, stock index options, and stock options, expire simultaneously. This simultaneous expiration can lead to increased trading volume and market volatility due to the massive rebalancing of futures and options contracts. Therefore, Triple Witching days can present both opportunities and risks to traders. Understanding this event is necessary for those in the trading and investment sector as it could significantly impact trading strategies and market outlooks.

Explanation

Triple Witching, a term related to financial and business sectors, is essentially an event that has a significant effect on the stock market. The phenomenon occurs on the third Friday of every March, June, September, and December months. During these times, the contracts for stock index futures, stock index options, and stock options, all expire concurrently, hence the term “triple.” These contracts are derivative instruments that grant the right, but not the obligation, to buy or sell a specific number of securities at a predefined price and time.Triple Witching serves as a purpose to induce increased volatility and trading volume in the stock market. This event makes for a particularly busy trading day in the marketplace, a hive of active buying and selling activities across index futures, options, and individual stocks. This amplified activity and volatility can provide unique profit opportunities for traders who capitalize on the rapid price movements. However, it is important to note that it is not without risks due to the increased unpredictability and market swings associated with triple witching, necessitating careful strategies and risk management.

Examples

Triple Witching refers to the quarterly expiration of stock options, index futures and index option contracts all on the same day. This event occurs on the third Friday of March, June, September, and December and can provoke significant volatility in stock and commodity markets. Here are three hypothetical real-world examples related to this phenomenon:1. “Stocks & Co.”: On a triple witching day, a company’s stock options, index futures, and index options all expire on the same day. As the company was doing well, many investors had bought options to buy the stock at a lower price. However, as the expiration day approached and the price increased unexpectedly, they needed to decide whether to exercise their options or let them expire worthless. This caused unpredictability in the market.2. “Jerry the Trader”: Jerry, a day trader, uses triple witching days as opportunities for arbitraging. He keeps a close eye on the price discrepancies between the futures, options, and the actual stocks. On one such day, he noticed a drastic price discrepancy and seized the opportunity to make a quick profit.3. “Markets & Futures Exchange”: On one triple witching day, the exchange saw high trading volumes and volatility due to the simultaneous expiration of the futures and options contracts. Market participants were either closing out their positions or rolling over to the next contract period, causing significant price fluctuations.

Frequently Asked Questions(FAQ)

What is Triple Witching?

Triple Witching refers to the quarterly expiration of stock options, stock index futures, and stock index option contracts all on the same day. This event occurs on the third Friday of March, June, September, and December.

Why is it called Triple Witching?

The term Triple Witching came about due to the volatility surrounding the convergence of the three financial products’ expiration dates. This is usually associated with an unusual amount of upheaval or chaos, thus the reference to witching.

What impact does Triple Witching have on the stock market?

Triple Witching days often result in increased trading volume and market volatility, as traders close, roll out or offset their expiring positions.

How can a trader profit from Triple Witching?

The increased volatility and trading volume on Triple Witching days might present profit opportunities for short-term traders who can effectively manage risk. However, it’s not guaranteed, as markets can be unpredictable and losses can occur.

Is Triple Witching exclusive only to the U.S market?

No, Triple Witching is not exclusive to the U.S market. It is observed in other markets where stock options, stock index futures, and stock index options are traded.

Are there increased risks involved during Triple Witching periods?

Yes, the increased volatility and trading volumes that accompany Triple Witching periods can create high risk. It’s highly recommended for inexperienced traders to seek professional advice before trading during these periods.

Is Triple Witching similar to Quadruple Witching?

Both refer to the expiration of different types of market derivatives, resulting in increased market volatility. However, Quadruple Witching includes an additional derivative – single stock futures, and occurs on the same days as Triple Witching.

Related Finance Terms

  • Derivatives
  • Options Contracts
  • Stock Index Futures
  • Expiration Date
  • Stock Market Volatility

Sources for More Information


About Due

Due makes it easier to retire on your terms. We give you a realistic view on exactly where you’re at financially so when you retire you know how much money you’ll get each month. Get started today.

Due Fact-Checking Standards and Processes

To ensure we’re putting out the highest content standards, we sought out the help of certified financial experts and accredited individuals to verify our advice. We also rely on them for the most up to date information and data to make sure our in-depth research has the facts right, for today… Not yesterday. Our financial expert review board allows our readers to not only trust the information they are reading but to act on it as well. Most of our authors are CFP (Certified Financial Planners) or CRPC (Chartered Retirement Planning Counselor) certified and all have college degrees. Learn more about annuities, retirement advice and take the correct steps towards financial freedom and knowing exactly where you stand today. Learn everything about our top-notch financial expert reviews below… Learn More