What is Quadruple Witching? Know in Detail!

Quadruple Witching corresponds to an exceptional trading day during which four types of derivative products expire simultaneously.

The expression may make you smile. But investors are wary of these stock market days when trading volumes and volatility can reach records.

These dates qualify a very particular period when events jostle on the markets, for technical reasons. Let’s see more in detail what these dates represent and how they impact the market..

What is Quadruple Witching?

Quadruple Witching days take place on the third Fridays of March, June, September and December and thus coincide with the end of the term. 

These days are quite exceptional since on this date many contracts on derivative products expire. 

Therefore it logically leads to significant stock market movements. Investors must in particular unwind their positions or “roll” them onto the next maturity date.

These Four Witches Fridays are therefore characterized by particularly high transaction volumes since operators make technical adjustments when buying or selling.

Finally, we also talk about the “quadruple witching hour”. It corresponds to the last hour of transactions on these particular days, a crucial moment when everything happens and where we often see important discrepancies due to the transaction volumes.

Quadruple Witching Dates 2024

Quadruple witching trading days occur on the third Friday of March, June, September, and December. These are the key dates when traders must pay close attention to market movements. For 2024, the quadruple witching dates will be March 15, June 21, September 20, and December 20.

Is Quadruple Witching Bullish or Bearish?

Quadruple Witching itself is neither inherently bullish nor bearish. The impact on the market can vary, with some quadruple witching days seeing significant upswings and others marked by downturns. It largely depends on current market sentiment, the positions being closed, and how traders decide to manage their portfolios on these days.

Quadruple Witching History

It was in 2002 that the first “Day of the Four Witches” took place. Before that year, it was only a Triple Witching as the first stock futures were traded in 2002.Triple witching is similar to quadruple witching but involves only three types of financial contracts expiring. It precedes the concept of quadruple witching, which added single stock futures into the mix.

Types of Contracts Involved in Quadruple Witching

On these days, four derivative products expire simultaneously. These include options on indices and stocks as well as futures contracts on indices and stocks as well. If all options as well as futures on indices expire every month, futures on stocks only expire every three months. It is the conjunction of the four events which only happens once a quarter.

Stock Options

Stock options are contracts that grant the holder the right, but not the obligation, to buy or sell a particular stock at a predetermined price (the strike price) before the contract expires. 

There are two main types: call options, which give the right to buy, and put options, which give the right to sell. Stock options are a popular way for investors to speculate on stock price movements or hedge existing equity positions.

Index Options

Index options are similar to stock options but are based on market indexes rather than individual stocks. 

These financial derivatives give traders the right to buy or sell the value of an underlying index, such as the Dow Jones Industrial Average (DJIA) or the S&P 500, rather than dealing with specific stocks. 

Index options are used to hedge against market movements, speculate on the future direction of the market, or gain exposure to a broad market segment with a single transaction.

Futures of Index

Index futures are standardized contracts to buy or sell a financial index at a future date and a specified price. Unlike options, which give the right but not the obligation to buy or sell, futures contracts carry the obligation to fulfill the contract terms. 

Traders use index futures for hedging against market risks, speculating on future movements of market indexes, or adjusting portfolio exposures without having to buy or sell the actual stocks that comprise the index.

Single Stock Futures

Single stock futures (SSFs) are futures contracts on individual stocks. They obligate the contract buyer to purchase, and the seller to sell, a specific number of shares of a particular stock at a predetermined future date and price. 

SSFs combine the market exposure of stock trading with the leverage and flexibility of futures trading. They allow investors to speculate on the future price direction of individual stocks or to hedge positions in their stock portfolios.

The convergence of these contract expirations on quadruple witching days significantly increases trading activity, as traders and investors close, roll over, or adjust their positions. 

This coordinated expiration can lead to increased liquidity and volatility in the markets, as the simultaneous settlement of these contracts necessitates a large number of buy and sell orders.

Understanding the characteristics and market functions of these contracts helps traders navigate the complexities of quadruple witching days, making informed decisions amidst the heightened market activity.

Market Impact of Quadruple Witches

Traders often close or roll out futures contracts to manage their positions, leading to increased trading activity.Indeed, it is not uncommon to see extreme nervousness in the order books a few minutes before deadlines. 

Traders cannot switch to the next expiry, they must close their position before this is done automatically. And liquidity is rarely there. The last latecomers therefore find themselves in difficulty and this sometimes creates unexpected incidents.

Furthermore, arbitrage opportunities here can have their advantages and disadvantages. Quadruple Witching can present arbitrage opportunities as price discrepancies arise. However, the heightened volatility also can considerably increase the risk.

Bottom Line

Quadruple witching significantly affects stock and futures trading by converging the expiration of four types of contracts. This event increases trading volume and market volatility. It occurs on the third Friday of March, June, September, and December, drawing traders’ attention to potential market shifts. 

The impact of quadruple witching on the market can vary, neither strictly bullish nor bearish. It includes the expiration dates of stock options, index options, index futures, and single stock futures. 

These contracts allow traders to speculate, hedge, or leverage positions across individual stocks and market indexes. The increased activity can lead to both opportunities and risks, especially in arbitrage. 

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