Triple Witching: Definition and Impact on Trading in Final Hour

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. Stock index futures were originally intended as a hedging instrument for institutional investors, but they are now also available to retail investors and speculators. Since they are derivatives based on an index, index futures are always settled in cash.

SPX’s daily range expanded nearly 7% on triple witching days, and the average percentage return was -0.72% lower than the daily average. With so many options being bought and sold and rolled over so quickly, the value of these options often fluctuates. In fact the value of stock options may rise or fall for days before expiration Friday, as traders prepare for what’s to come. As with all market changes, these price fluctuations can means good news or bad news for investors. 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.

However, the average volume almost doubled to 4 million on the four triple witching trading days. Unless the short or long is closed before expiration by purchasing an offsetting position, you must settle the contract at the agreed-upon price. But for the majority of long-term buy-and-hold investors, the volatility exhibited on triple-witching days shouldn’t be ominous.

What are Some Triple Witching Trading Strategies?

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 fourth type of contract involved in quadruple witching, single-stock futures, hasn’t traded in the U.S. since 2020. Any references to quadruple witching are about the three types of contracts above expiring simultaneously. Options that are in the money are similar for those holding expiring contracts. For example, the seller of a covered call option can have the underlying shares called away if the share price closes above the strike price of the expiring option. Options expiration day is always the third Friday of every month and is typically volatile.

There was previously a similar phenomenon known as “quadruple witching.” It included the concurrent expiration of etoro these three derivatives as well as single-stock futures, which were introduced in the U.S. in 2002. But single-stock futures stopped trading in the U.S. around 2020, leaving us with the original trio of witches. 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 last hour of trading can be especially volatile as investors scramble to exit positions before the market closes. The triple witching day of March 17, 2000, coincided with the peak of the dot-com bubble. The technology-heavy Nasdaq Composite Index had soared to unprecedented heights, but cracks were beginning to appear.

How do you trade the triple witching hour?

The position management amplifies volume, specifically at the end of the trading session Friday afternoon. In fact, studies have shown that trading volume on triple witching days can be as much as double the average daily volume. Triple witching day occurs four times in a year when the expiration date of three types of derivatives coincides. Triple witching hour, typically, is referred to the last hour of trade on that day. While triple witching days may see some market volatility, not all trades occur in the last hour. 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.

The increased volume tends to lead to higher volatility and intraday price swings and stocks can be unpredictable on Triple Witching day. Writers and holders of futures and options contracts must exit their positions to avoid stock assignment if their position is in-the-money. As triple witching Fridays approach, traders often have to decide whether to roll over their positions. Rolling over involves closing the expiring contract and opening a new one with a later expiration date. This can be particularly useful for maintaining exposure or hedging without immediate obligations.

Triple witching dates 2025

The volatility was likely caused by the triple witching day (news reports mentioned tension over interest rate movement and inflation fears, which added to the market’s uneasiness). Triple witching is an unusual market phenomenon that can cause increased volatility, gbpaud correlation though it happens only four times per year. Triple witching can offer an opportunity for investors to take advantage of a more volatile market and put more money to work.

Triple witching days 2025

Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. Tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer. Triple witching can influence individual stocks such as those with large options or futures contracts set to expire. As traders adjust or close their positions, there can be unusual movement in the stock’s price and volume.

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Investors and traders should always keep their eyes on the calendar for events that may affect their positions and portfolios or influence the broader market. These include not only quarterly earnings reports and key economic news, but also short-term events like triple witching Fridays. They may not carry long-term market impact, but they’re still worth following, because sometimes the markets cook up a cauldron of heightened trading volume and volatility. At its core, Triple Witching is the quarterly event when three different types of financial derivatives contracts—stock options, stock index futures, and stock index options—all expire on the same day. 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.

While the potential profits may be enticing, Triple Witching Days can be a trap for beginning investors. Before swinging for the fences, new traders can learn the basics from the Verified Investing Apprentice Trading Library, then choosing specialty courses to hone their skills. Stock index futures are futures contracts based on major market indices like the S&P 500 or Nasdaq. Other popular index futures include the E-mini S&P 500, E-mini Nasdaq 100, and E-mini Dow. Futures are legally binding contracts that must be honored while exercising options is… optional. Triple-witching days often coincide, as is the case Friday, with S&P index rebalancing, which generates additional trading volume and can contribute to volatility.

Most Options Traders Chase Quick Profits—Smart Ones Build a Trading…

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 Forex momentum indicator options very profitable. Triple Witching days, with their unique blend of volatility and opportunity, underscore the dynamic nature of financial markets. By staying informed, sticking to proven strategies, and seeking expert advice when needed, you can turn these seemingly chaotic days into just another step in their financial journey. This convergence can lead to a surge in trading activity, making it a day of heightened volatility.

When these three types of contracts expire simultaneously, it creates a flurry of trading activity as investors close out existing positions, roll over contracts, or establish new ones. This surge in volume can lead to increased volatility, making the market prone to sharp price swings. Triple witching does not include all of the stock index futures and options contracts, so even though they are the most talked-about expiration events, they are not the only expiration days. 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. 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. As options and futures contracts expire, investors must close or offset their position or roll out existing positions to a future expiration date.

These traders may be able to buy short-term dips and then sell them the same day or shortly thereafter for a gain. Similarly, they may be able to short sell stocks that have risen due to a short-term blip in volatility. A solid options edcuation can be an invaluable resource when developing and executing your triple witching trading strategies. Our programs provide skill, strategies and trading systems to help you make informed decisions. Whether you’re exploring different strategies, analysing potential risks, or tracking market movements, OptionPundit has you covered. The world of finance is filled with colourful jargon, and “triple witching” is no exception.

By the end of trading on that third Friday, investors must decide whether they’re going to hold their contracts through the close (with a potential exercise of the contract) or close them out. Traders may be closing out stock and index positions, closing out a hedge position matched to a contract or raising cash from other positions to fund their purchase of a contract’s deliverable. Although the four triple witching days represent just a fraction of the 250-plus trading days in a typical year, the stakes are considerable. According to Bloomberg data, during the June 2024 triple witching, about $5.5 trillion worth of options linked to indexes, stocks, and ETFs expired, or “came off the board,” in trader lingo.

Palantir (PLTR) and Dell (DELL) will join the benchmark S&P 500 after Friday’s close; so will insurance company Erie Indemnity (ERIE). Those stocks and the ones they’re replacing—American Air Lines (AAL), Etsy (ETSY), and Bio-Rad Laboratories (BIO)—could see high volume on Friday as funds tracking the index buy and sell shares. 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%.

— Posted on August 2, 2024 at 1:59 pm by