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Understanding Quad Witching and Its Impact On The Market

Quad witching, now more commonly called triple witching, is a quarterly event where four types of derivatives contracts expire on the same day:

  • Stock index futures contracts (e.g., E-Mini S&P 500)

  • Single-stock options (e.g., options on Apple or Tesla stock)

  • Options on stock-index futures

  • Stock index options (e.g., options on the S&P 500 or Russell 2000)

Quad witching

Why "Triple Witching"?

While single-stock futures were once included, they're no longer a major player in the US market. So, the expiration of the remaining three contracts is what typically occurs.

When Does Quad Witching Happen?

These expirations occur on the third Friday of March, June, September, and December, coinciding roughly with the end of each quarter. For 2024, the dates are:

  • March 15

  • June 21

  • September 20

  • December 20

Quad witching

Market Impact:

  • Increased Volume and Volatility: The concentrated expiration can lead to a surge in trading activity and potentially higher short-term price fluctuations.

  • Portfolio Adjustments: As contracts expire, traders and portfolio managers may need to close out positions or "roll" them forward to new contracts, further contributing to trading volume.

A Less Volatile "Witching"?

The term "witching" implies a chaotic event, but regulations have somewhat tamed the past volatility associated with these expirations. While still a busy trading day, it's mostly characterized by heavy volume rather than unpredictable market swings. There's a tendency for a bearish mood to take hold the day before or during the initial trading of a quad witching event. This could be due to factors like traders closing out positions or adjusting them in anticipation of expiration. However, it's important to remember that quad witching doesn't always lead to a market downturn.

Looking Deeper:

  • Stock Index Futures: These are popular contracts like the E-Mini S&P 500 (ES) and E-Mini Nasdaq-100 (NQ). They expire quarterly, and traders need to "roll" expiring contracts to new ones to maintain their positions.

  • Single Stock Options: These track individual company performance (e.g., Apple or Tesla). Options expire monthly, so they always coincide with quad witching days.

  • Options on Stock Index Futures & Stock Indexes: These are more complex instruments used by some investors, particularly institutions. They also expire quarterly and contribute to quad witching activity.

Disclaimer: This information is for informational purposes only and should not be considered financial advice. Always conduct your own research before making any investment decisions.

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