They are also suitable instruments for investors willing to hedge a portfolio of separate stocks. The full list also includes double witching (when two of the asset classes expire simultaneously) and triple witching (when three of the four markets expire simultaneously). The next quadruple witching day in 2022 is scheduled for Friday, June 17th, for the close of the second quarter of the year. Following June 17th is September 16th for the third quarter and December 16th for the fourth quarter later this year.

Normally the third Friday of each month is Options Expiration day anyways, but it just so happens that for each of these four months, the OPEX coincides with the expiration of three other derivatives markets. Another factor is quarterly index rebalancing, also known as reconstitution, on the “witching” day. That means portfolio managers tracking rebalancing indexes, including those from S&P Dow Jones in the U.S. and FTSE in the U.K., may need to trade reflecting index changes. In this guide, we’ll explain what quadruple witching is, when it happens, and why traders should pay attention to it.

As we’ve explored the realms of Quad Witching, the platform of Tradervue has emerged as a powerful ally, offering a comprehensive trading journal that empowers traders to enhance their performance. Leaves will begin to fall, and the financial world gears up for the third Quad Witching date of 2023 – September 15th. This juncture presents a unique opportunity to observe how market dynamics unfold as contracts simultaneously reach their expiration.

• As such, quadruple witching should be viewed more as a period of potential market unpredictability rather than a predictor of a specific market direction.
• The adjustment of positions in currency-related derivatives made by traders can lead to fluctuations in the DXY, reflecting broader market sentiments.
• On quad witching days, the expiry of these options can trigger portfolio rebalancing among institutional investors, influencing the stocks within the index.
• The first quad witching date of 2022 has already passed and it took place on Friday, March 18th.

A futures contract obligates the buyer to purchase the underlying asset at expiration, while the seller is bound to sell at expiry. Single stock futures are contracts that obligate the buyer to deliver shares of the underlying stock on the contract’s expiration date. Dividends are cash payments made to shareholders from a company’s earnings. It’s difficult to pinpoint an actual trend or market sentiment from a quad witching day. Some will point to it being a bearish catalyst as we can sometimes see some market downturn during the last hour of the quad witching session.

The Future of Quad Witching in a Shifting Market Landscape

For example, purchasing if they feel the index will climb and selling if they believe the market will fall. This prevents a portfolio manager from having to liquidate the portfolio during market falls. Instead, the futures contract makes money while the portfolio loses money.

Typically, options contracts expire monthly on the third Friday, while futures contracts expire quarterly on the same day. As a result, quadruple witching happens four times throughout a financial year, i.e., the third Friday of March, June, September, and December. Inevitably, there is a spike in trading activity on these days due to traders balancing their positions on all financial contracts. Quad witching, now technically triple witching, occurs four times per year on the third Friday of the end of each quarter. The positioning of funds and their hedges overall gives supportive bullish flows in the week leading up to quad witching. Pinning, high volume trading and contract rolling has shown in the past few years to lead to negative returns on the day of quad witching, particularly in the last hour.

Others might choose to extend the contract (to roll it forward) by offsetting the existing trade and simultaneously booking a new option or futures contract to be settled in the future. Now that you know what quadruple witching is and where its name originates, you can conclude its effect on the market. Years of market history had shown that quadruple witching days could lead to a substantial increase in volatility and (rarely) market havoc. While this isn’t always the case, it is essential to be aware that the markets might be unstable around these particular dates. Single stock futures are obligations to take delivery of shares of the underlying stock at the contract’s expiration date at a specified price.

Quad witching – Types of Contracts Involved

The key lies in dealing with the increased price fluctuations of market instruments and the heightened trading volume typical for these days. A – Professional investors and arbitrageurs can profit from quad witching by taking advantage of the temporary movement in stock prices. It requires keeping a tab on the stock prices, closely examining its surge or fall-offs. However, novice investors must not actively participate on this day but observe the situation. Another thing to bear in mind is that for most traders, what matters is the minimum price fluctuation and tick value.

Single Stock Futures (SSFs)

Stocks across various sectors, particularly financials, experienced significant turbulence. The Dow Jones Industrial Average faced steep declines that reflected broader economic concerns and the tumultuous financial landscape of that period. These are not mere elements; they are the building blocks of a captivating phenomenon that leaves its mark on the stock market landscape. Zero-commission brokers have been in the news emphasizing the democratization of investing, pitching cost-savings for clients, and helping fuel the momentum of meme stocks.

Quadruple Witching Day Explained

Although it hasn’t been proven that quad witching regularly causes market volatility, if you’re spooked, it’s easy to just avoid trading options or stocks on these four shooting star trading days each year. If you include the trend of the markets falling post-quad witching, then there is an argument for saying it is a bad thing. With all of these contracts expiring on the same date, it certainly adds overweight trading volume for that particular session. Still, the overall effect of quad witching is minimal to the stock markets so it is still a bit of a stretch to call the event good or bad. Futures contracts are legal agreements to buy or sell an asset at a determined price at a specified future date.

On June 18, the trading volume surged significantly, with the market witnessing an influx of transactions as traders adjusted their positions in response to the expiring contracts. Notably, the S&P 500 experienced considerable fluctuations, reflecting the broader market’s response to the expiry. The index oscillated between gains and losses, showcasing the increased market instability that is a hallmark of quad witching days. Futures options, unlike stock options, are cash settled, and can only be exercised on expiration date. Futures and stock contracts involve a complex design of many major participants. Some selling them, some using them as hedges, and some arbitraging the price discrepancies via large amounts of trading.

• Any major happening in the financial landscape can extensively influence the momentum of this day and can change the market trajectory.
• Amidst the Quad Witching convergence, the expiration of stock options adds a layer of granularity to the market’s narrative.
• Past results and past seasonal patterns are no indication of future performance, in particular, future market trends.
• For example, a window of higher trading liquidity can make it difficult to tell whether it’s option expiration events or a change in business fundamentals driving a stock’s price movement.
• Despite the general increase in trading volume, quadruple witching days do not always imply high volatility.
• While this isn’t always the case, it is essential to be aware that the markets might be unstable around these particular dates.

Quadruple, triple, and double witching okcoin review all derive their names from the potential havoc with increased volatility. Spikes in trading volume and volatility occur when all of these derivative assets expire on the same day. However, increased trading volume on quadruple witching days is typically not accompanied by higher volatility. This is in part because institutional investors aren’t changing their large long-term positions on these days. The derivatives involved in quadruple witching are often used for hedging and represent small holdings relative to the stock positions that many institutional investors maintain.

Stock Index Options

The chart on the next page shows the average performance of the S&P 500 in the 15 trading days before and after quadruple witching day. It was calculated over the past 15 years, which featured 59 quad witch days in total. At certain times – namely the quadruple witching hours of quadruple witching Friday, many investors are closing out contracts they hold, which leads to heavy trading activity. The quadruple witching event in June 2021 led to a near-record dollar amount of single stock equity options. That Friday saw $818 billion in single stock options expiration at the close of the trading session. On March 15, 2019 (the first quadruple witching days for the particular year), over 10.8 billion shares were traded, compared to 7.5 billion on average over the prior 20 days.

As with any other witching day, there was hectic activity in the preceding week. According to a Reuters report, trading volume on U.S. market exchanges on that day was “10.8 billion shares, compared to the 7.5 billion average… over the last 20 trading days.” There tends to be a lot of frenzy in the days leading up to a quadruple witching day. But it’s unclear whether the actual witching leads to increased market gains. That’s because it’s impossible to separate any gains due to expiring options and futures from gains due to other factors such as earnings and economic events. While quadruple witching takes place four times a year, stock options contracts expire more frequently—on the third Friday of every month.

It’s crucial for market participants to be aware of these dates well in advance. The increased market fluctuations of quad witching necessitates rigorous risk management. Implementing stop loss orders is stock market index trading strategies a fundamental strategy to mitigate potential losses. These orders automatically sell a security when it reaches a certain price, thus limiting the trader’s exposure to a falling market.

Index futures, agreements to buy or sell a financial index at a future date, are barometers of future market expectations. The expiry of these futures, especially when aligned with other derivatives on quad witching days, can lead to substantial market adjustments. This confluence of expirations triggers a flurry of activity among traders and investors who seek to adjust, roll over, or liquidate their positions. The overall activity of the speculators can impact stock prices and indices. Hence, Quadruple Witching Day offers both challenges and opportunities for market participants keen to capitalize on the shifts and trends that emerge during this critical financial event.

Viktor loves to experiment with building data analysis and backtesting models in R. His expertise covers all corners of the financial industry, having worked as a consultant to big financial institutions, FinTech companies, and rising blockchain startups. The former gives its holder the right to buy a stock, while the latter can sell the instrument. Our weekly digital publication of actionable swing setups, with a horizon spanning from days to months, driven by “FunTech”, our proprietary mix of Fundamentals and Technical Analysis. If you are under the impression that every trading session is the same, then we are sorry to say this, but you are sorely mistaken.