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Triple Witching

A quarterly event in US markets that occurs when the contracts for stock index futures, stock market index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December. The simultaneous expirations generally increase the trading volume of options, futures and the underlying stocks by hedge strategists, arbitrageurs, and other investors, and occasionally increase volatility of prices of related securities and cause some pretty big swings in the stock market. This phenomenon is sometimes referred to as “freaky Friday”.

The final trading hour for that Friday is known as triple witching hour (3:00-4:00 P.M., New York Time). The markets are quite volatile in this final hour, as traders quickly offset their option/futures orders before the closing bell. If you are a long-term investor, triple witching will have a minimal impact on you.

For instance, if a lot of people think that the next futures contract looks expensive, they may decide not to “roll” their contracts and instead buy the underlying stocks. That will add some buying pressure to the market and, if there’s not much else moving the market that day, drive stocks higher. Nowadays, many futures and options players unwind positions ahead of triple-witching Friday, so the effect has been dampened in recent years.

In the past, all contracts expired in the same hour, but steps were taken so that contracts now expire at the open as well as the close of the day instead of all at once. Smaller-scale witching days occur in the other eight months, usually on the third Friday, when other options, index options, and futures contracts expire concurrently.

With the introduction of Single stock futures, all four contracts expires on the same days, so triple witching has become quadruple witching.