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? ›
Quadruple witching events can be especially chaotic, and are therefore conducive to high-magnitude price swings. As a result, there's the potential for temporary distortions in the market.
How to trade quad witching? ›
On quadruple witching days, traders are typically selling or executing open options contracts, while profitable options contracts execute automatically. On the same day, all futures contracts must be settled and traders can open new futures contracts for the next three-month period.
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? ›
Every third Friday in March, June, September, and December marks the simultaneous expiration of futures and options on indices and stocks. If this moment is known as the quadruple witching hour, is because the expiration of contracts has historically affected the price of underlying assets (indices and stocks).
What are the worst days to buy stocks? ›
During a bear market, Mondays and Tuesdays are most volatile, and stocks tend to fall the most on these days. In contrast, Thursdays are good days to sell because stocks tend to rise during that day of the week.
What is witching hour stock options? ›
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.
What are witching stocks? ›
The witching hour is the final hour of trading on the days options and futures contracts expire. Double Witching: What It Is, How It Works. Double witching refers to the expiration on the same day of stock option and stock index option contracts. It boosts stock market trading volume.
Who allows 4am trading? ›
Fidelity Investments: Fidelity offers extended hours from 7 am to 9:30 am and from 4 pm to 8 pm. Merrill Edge: Merrill Edge offers extended hours from 7 am to 9:30 am and from 4 pm to 8 pm. Webull: Webull offers full extended hours – 4 am to 9:30 am and from 4 pm to 8 pm.
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.
During the last hour of trading on the third Friday of March, June, September, and December, called the quadruple witching hour, market activity can increase as traders adjust positions and rollover contracts.
Does quadruple witching still exist? ›
Quadruple witching days are the third Fridays of March, June, September and December. That way, they occur near the end of each quarter in the year. In 2024 they're on: March 15.
Do stocks go up or down on triple witching? ›
Stocks do not consistently fall on witching days. While triple witching can lead to increased market volatility due to the simultaneous expiration of stock index futures, stock index options, and stock options, this does not necessarily result in a downward movement in stock prices.
Why is it called quad witching? ›
"Witching" is where the contracts simultaneously expire, causing trading to soar in the last hour. Because of unusual price movements, sessions are dubbed the “quadruple witching hour”, or “Freaky Friday” in stock market lingo.
Do single stock futures still exist? ›
Trading continued until 2020, when the last US exchange, OneChicago, closed, halting the last trading of SSFs in the U.S.62 By then, still too few Americans knew about them, there were remaining issues getting SSFs to the market given the dual-regulatory authority of the SEC and CFTC, and investors were used to ...
What month do stocks go down the most? ›
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.
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.
When should you drop a stock? ›
A stock doesn't need to be performing particularly poorly for you to consider jettisoning it from your portfolio. If there is another stock in the same sector that looks like it has more upside than the one you own, sell your position and buy the one with more potential.
If you’re like me, you’re always looking for the best return on investment. Can trading around quadruple witching help you earn more?