Quadruple Witching: the stock market seasons change

Stock market ticker board, possibly on quadruple witching day.

Quadruple witching days are days of increased trading volume and volitility on the stock market. Image from Flickr.

Today is Quadruple Witching day on the stock market – the day where all four of the major linchpins of the stock market — market index futures, market index options, stock options, and stock futures — all expire. This “quadruple witching” happens the third Friday of every March, June, September, and December, and like the equinoxes and solstices that follow quadruple witching, they usually indicate change on the way. So if you’re a market investor looking for fast loans to pour into the market or a private individual with extra cash to invest, knowing what quadruple witching means will help you invest intelligently.

Quadruple witching day and quadruple witching hour

Quadruple witching day, like clockwork, falls on the third Friday of March, June, September and December. That day usually means increased volatility in the stock market, as investors scramble to make changes to their investments before their futures expire.

The quadruple witching hour – between 3 and 4 p.m. Eastern time on quadruple witching day – is the last hour of trading and is usually accompanied by a flurry of trading activity. The volume of trading on quadruple witching day is also very high – which means extreme changes in price can happen much more quickly.

What financial products does quadruple witching affect?

There are four financial derivative products that have a part in quadruple witching day. The first is a stock market index future – a contract that pays cash and is based on the price of a stock market index (such as the S&P 500).

Market index options give buyers the right (though not the obligation) to buy into a stock index by the end of the contract. A stock option, like a market index option, gives a buyer the option to purchase a stock at a set price. Finally, stock futures are contracts based on the projected future price of a stock. On quadruple witching day, all of these contracts expire, which means buyers and sellers must settle or re-purchase the contract for the next quarter.

Where does the name quadruple witching come from?

Before 2002, when single-stock future trading was not allowed, the day each quarter when contracts expired was called “triple witching” – most likely in reference to the three witches of Shakespeare’s Macbeth. The additional volatility and nearness to the 15th of most months made sure that investors were wary of the “ides” of the month. When single-stock futures trading was added to the market, however, the term became “quadruple witching” and is considered financial industry jargon.

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