Witching Hour: CNBC Explains

When the trio – stock options, stock index futures, and stock index options – culminate their life cycle simultaneously, it triggers a tectonic recalibration in the market landscape. Traders and investors, in a flurry, realign or dissolve their positions in the wake of expiring contracts. This flurry, marked by an upsurge in trading volume, often catalyzes pronounced price oscillations and an unpredictable market demeanor. 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. For example, futures contracts that are not closed require the seller to deliver the specified quantity of the underlying security or commodity to the contract buyer.

  1. Short-term traders should adapt their strategies to these conditions, avoid trading, or reduce their position size if they notice their performance deteriorates during this time.
  2. As options and futures contracts expire, traders must close or roll out their existing positions to a future expiration date.
  3. The position management amplifies volume, specifically at the end of the trading session Friday afternoon.
  4. Lastly, the very aura of an impending triple witching can recalibrate trader behaviors.

What happens to stocks on triple witching 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. In summing up, triple witching stands as a noteworthy event in the financial landscape, shaping unique opportunities and hurdles for market enthusiasts. The coalescence of stock index futures, stock index options, and stock options expiration paints a vibrant trading scene, characterized by its sharp volatility spikes and surging trade volumes. Triple witching can influence individual stocks such as those with large options or futures contracts set to expire.

Trading strategies for triple witching

The actions surrounding futures and options contracts are especially pronounced on triple witching days, as traders aim to manage their exposure and avoid unwanted outcomes. Triple witching sounds like something from a horror movie, but it’s actually a financial term. Options and derivatives traders know this phenomenon well because it’s the day when three different types of contracts expire. It happens only once a quarter and can cause wild swings in volatility, as large institutional traders roll over futures contracts to free up cash.

Triple witching dates 2024

Witching hours are used by traders to try to profit from the volatility in the underlying stocks or commodities. 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%. In some cases, this may be true, but triple witching can also be a rather calm event, with lower volatility and a statistical bias to the upside (at lease for S&P 500 futures) during the week of and on triple witching. Triple witching occurs on the last Friday of each trading quarter (i.e., March, June, September, and December). The triple witching dates in 2024 are March 15, June 21, Sept. 20, and Dec. 20.

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Positions are then typically reopened in contracts that expire at a later date. Triple witching is the simultaneous expiration of stock options, stock index futures, and stock index options contracts, all on the same trading day. This happens four times a year, on the third Friday of March, June, September, and December. The expected expiration date for the three might increase trading volume and cause unusual price changes in the underlying assets.

Increased trading volume

Traders and investors who are not prepared for this increased volatility can be caught off guard and suffer losses, so it pays to know when it is and have a plan of what you want to do. Single stock futures have an interesting backstory, which we’ll get to later on. Options contracts offer the right, but not the obligation, to buy (call options) or sell (put options) the underlying asset at a set price by a certain date. As options approach their expiration date, those that are “in the money” (i.e., have value) lead to strategic decisions for the holders. They must decide whether to exercise the options, close them, or let them expire. This can lead to automatic executions and significant movements in the underlying stocks, especially when large numbers of options are involved.

Are There Strategies Traders Can Use For Triple-Witching Dates?

In financial markets, the “witching hour” refers to the last trading hour on the third Friday of each month, when options and futures on stocks and indexes expire. This period is characterized by heavy trading volumes and increased volatility as investors rush to close or roll over positions before the end of the trading day. Double, triple, and quadruple witching can occur when two, three, or four asset class contracts expire simultaneously.

This event occurs on the third Friday of March, June, September, and December. Triple witching is the synchronized expiration of stock index futures, stock index options, and stock options on the third Friday of March, June, September, and December. It’s pivotal for traders because the convergence of these expirations can heighten market volatility, amplify trading volumes, and present arbitrage opportunities.

Lastly, the very aura of an impending triple witching can recalibrate trader behaviors. Some might opt for the sidelines, preferring to bypass the whirlwind of volatility, while others might dive headlong, lured by the prospects spawned by these market undulations. 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.

Much of the action surrounding futures and options on triple-witching days is focused on offsetting, closing, or rolling out positions. Options give investors the right, but not the obligation, to buy or sell an underlying asset at a set price on or before a given date. Options contracts are available on most of stocks, commodities, currencies, and other legacyfx review assets. Last Thursday marked the unofficial start of triple witching options expiration, with the rollover of June futures contracts into the September forward month at many brokers. The period from the rollover through this Friday’s expiration have a well-earned reputation for whipsaws and reversals, raising the potential for high volatility.

Closing out a position involves selling the financial instrument back into the market. Rolling over a position involves selling the current financial instrument and simultaneously buying the same instrument with a later expiration date. On the expiration date, futures and options (if exercised), must be settled which means either the underlying asset needs to be delivered or the settlement is made using cash.

76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk https://www.broker-review.org/ of losing your money. For the week 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.

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