If you’re like me, you’re always looking for the best return on investment. Can trading around quadruple witching help you earn more?
What is quadruple witching and can you use the phenomenon to your advantage when trading stocks? Should you even bother? Quadruple witching is the expiration of stock options and stock futures at the same time. And, it only takes place only four times throughout the year.
When is quadruple witching? Quadruple witching takes placein March, June, September, and December on the 3rd Friday of the month. Itrequires options and futures investors toclose out their tradingpositions across stock options, single stock futures, stock index futures, and stock index options on the exact same da. And, the phenomenon is often associated with higher than normaltrading volumes on the stock exchanges in the United States.
What Is Quadruple Witching?
Quadruple witching is a calendar phenomenon whose name may be far worse than its actual occurrence. The name conquers up thoughts ofwitches casting spells of doom and gloom on Wall Street. But, that’s not quite what’s going on of course.
Duringquadruple witching, many options and futures investors must let go oftheir futures and options positions before the contracts expire at the end of the day. Investors may notice a fury of investing activity if you watch CNBC, Fox Business News, and the other business television news networks, especially during the final hours of market trading in the United States.
The strange sounding phenomenon often forces investors torepurchase contracts and/or sell theirmarket positions closing our their contracts. Investors must finish their futures and options contracts on the expiration day. They have the option to repurchasing – or rolling over their positions – or closing out all of their options and futures positions.
All of this market activity by the options and futures traders often leads to a verynoticeable increase in trading volumes for theday on the NYSE, NASDAQ, and other stock markets in America. Many estimate that trading volume during quadruple witching days can be a high as 50% more than a normal trading day.There canoften be anincrease of intraday volatility as well.
At the end of the day, the name quadruple witching is a lot more bark than bite. For the typical investor, you may barely even notice when the day is or the spike in trading volume on the stock exchanges. For most investors who practice dollar cost averaging in the 401k retirement plans and the like, they will barely notice. And, that’s a good thing!
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Take Advantage of Quadruple Witching
For the most part, typical investors should probably just ignore the four days out of the year that are quadruple witching. But, sophisticated investors can use exchange traded funds (ETF) in some cases to take advantage of the volatility in the stock market and increased trading volume.
There are several ETFs that are quite liquidand tend tofocus on volatility. If you have questions, you should seek out the advice of a qualified advisor who can help you invest and trade in markets with high volume and increased trading volatility.
Watch Out For Bid – Ask Spreads
Quadruple witching will notlikely to interfere with the typicalinvestor’s plans if you are investing for the long term, maximizing your retirement accounts, and usingdollar cost averagingto purchase your investments.
But, investors need to understand that there is apotential forwider than normal bid and ask, the difference between prices sellers and buyers quote each other on stock exchanges (both computer and humans), because of higher average trading volume.
This can be important to the average investor who is actually looking to purchase or sell stocks on a day that happens to fall on one of the four days of quadruple witching duringthe year. if you want to avoid added risk during quadruple witching, your best strategy may be to wait to invest until the following Monday.
Take the day off. Turn the television off and stop watching so many financial news networks. Simplyavoid the day and placing trades if you are nervous about the volatility and the trading volume of quadruple witching. Sometimes,the best investing trade that you can make is to donothing at all.
Is quadruple witching all it’s cracked up to be? Should typical American investors even pay any attention to quadruple witching?
FAQs
Quadruple witching is an event in financial markets when four different sets of futures and options expire on the same day. Futures and options are derivatives, linked to underlying stock prices. When derivatives expire, traders must close or adjust positions. That can trigger significant volume and order flow.
Do stocks go down on Quad Witching Day? ›
This is when stock index futures, stock index options, stock options, and single stock futures expire. The expirations can have an important influence on the stock market. Witching days do not normally affect whether the market moves up or down.
Is quadruple witching bullish or bearish? ›
Instead, the event is largely a function of speculation and investor sentiment. When quadruple witching occurs, traders should expect increased volatility and manage their positions accordingly. The resulting market swings could be bullish or bearish depending on how investors interpret the situation.
What usually happens on quadruple witching day? ›
The financial markets have quadruple witching dates on the third Friday of March, June, September, and December. On these days, four types of financial contracts expire simultaneously: stock index futures, stock index options, stock options, and single stock futures.
What is witching in the stock market? ›
What Is the Witching Hour? The witching hour is the last hour of trading on the third Friday of each month when options and futures on stocks and stock indexes expire. This time is when there are likely heavier trading volumes as traders close out options and futures contracts before expiration.
Which month is worse for stocks? ›
One of the historical realities of the stock market is that it typically has performed poorest during the month of September. The "Stock Trader's Almanac" reports that, on average, September is the month when the stock market's three leading indexes usually perform the poorest.
Which months are best worst for stocks? ›
Nasdaq 100 Seasonal Patterns
- Best Months: January, March, April, May, June, July, August, October, November.
- Worst Months: February, September, December.
4 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.
What is the most bullish pattern in the stock market? ›
The Ascending Triangle is a bullish continuation pattern that represents a pause during an uptrend, with a continuation of the upward move once completed. It is formed by a flat resistance line and an ascending trendline that connects the rising troughs.
Do stocks go up or down on option expiration? ›
On the other hand, if many options contracts expire out of the money (i.e., the stock price is below the strike price), the options owners may not exercise their options, and the stock may experience selling pressure, potentially driving down the price.
Quadruple witching dates are important to investors, as such dates are usually the most heavily traded days of the year, attributable to the exercise of futures and options before expiry. As a result, there tends to be greater market volatility on quadruple witching days.
Is triple witching bullish or bearish? ›
Anything can happen any week, but Triple Witching usually has a bullish tint to it. Two reasons to explain this could be the market maker unwind and option charm over time.
What is the triple witching hour in the stock market? ›
Triple witching hour is the last hour of the stock market trading session (3:00-4:00 P.M., New York City local Time) on the third Friday of every March, June, September, and December.
How do you know if a stock will spike or drop at market open? ›
If S&P futures are trending downward all morning, stock prices on U.S. exchanges will likely move lower when trading opens for the day. The opposite is also true, with rising futures prices suggesting a higher open.
Why do stocks move at night? ›
Because relatively few people actually trade after the market closes, orders tend to build up overnight, and in a rising market, that will produce an upward price surge when the market opens. But during extended declines, overnight sell orders may cause prices to plummet when the market opens.
Why do stocks go up over night? ›
Stock prices spike because there aren't enough large brokerages ready and willing to sell the in-demand stock based on limited information early in the day.
Do stocks fall on triple witching day? ›
Triple witching is when the expiration of stock options, stock index futures, and stock index options all fall on the same day. It only happens four times a year – on the third Friday of March, June, September, and December – which can create a spike in trading volume and volatility.
What are the worst days to buy stocks? ›
The worst days to trade stocks are Thursdays and Fridays. Let's start by looking at each weekday: we look at the performance from the close of one trading day to the close of the next (separated by weekdays). Thursdays and Fridays are the worst days to trade stocks during the week!
What days do stocks go down? ›
However, some traders and investors believe that markets tend to trend downward on Mondays. This can mean much lower returns on Monday than there were to be had on Friday, making Monday traditionally known as a good day of the week to snaffle up potentially undervalued stocks and indices.
How does triple witching affect the stock market? ›
Triple Witching's Impact On Investors & The Market
Triple witching does not directly move the market higher or lower, all it does is temporarily increase trading volume and liquidity. The increased volume and price fluctuations triggered by triple witching cause traders to take action on the underlying assets.
If you’re like me, you’re always looking for the best return on investment. Can trading around quadruple witching help you earn more?