Triple witching hour Wikipedia

From basics to advanced trading strategies, our options mastery programs navigate every trader’s journey. Triple witching, typically, occurs on the third Friday of the last month in the quarter. In 2022, triple witching Friday are March 18, June 17, September 16, and December 16.

Triple witching hour

Unusual price movements are often short-lived and, because investors know triple-witching is happening, turbulence is unlikely to materially change market sentiment. Triple-witching days often coincide, as is the case Friday, with S&P index rebalancing, which generates additional trading volume and can contribute to volatility. Palantir (PLTR) and Dell (DELL) will join the benchmark S&P 500 after Friday’s close; so will insurance company Erie Indemnity (ERIE). Those stocks and the ones they’re replacing—American Air Lines (AAL), Etsy (ETSY), and Bio-Rad Laboratories (BIO)—could see high volume on Friday as funds tracking the index buy and sell shares.

How We Make Money

• Short-term traders should adapt their strategies to these conditions, avoid trading, or reduce their position size if they notice their performance deteriorates during this time.
• By posting material on IBKR Campus, IBKR is not representing that any particular financial instrument or trading strategy is appropriate for you.
• The trader closes the expiring position, settling the gain or loss, and then opens a new position in a different contract at the current market rate.

Stock index futures and options are typically cash-settled, whereas you need to deliver the stock in case of single stock options. On Triple Witching, traders and investors who hold these financial products are faced with a decision. They world forex broker can either close out their positions or roll them over into the next expiration cycle.

IBKR LLC (U.S.)

Traders may also decide to exercise these stock options, choosing whether to take delivery on long call options and exercise put options. If they’re exercising a long call and taking delivery on the stock, they’ll need cash or enough margin capacity to purchase the stock and may need to sell stocks to fund the exercise of the call. At the same time, traders with short puts may be forced to buy stock, meaning they’ll need to have cash or margin to fund the purchase. Options expiration day is always the third Friday of every month and is typically volatile. But for the majority of long-term buy-and-hold investors, the volatility exhibited on triple-witching days shouldn’t be ominous.

As a result, triple-witching dates are when all three types of contracts; stock index futures, stock index options, and stock options all expire on the same day causing an increase in trading. Triple Witching occurs on the third Friday of March, June, September, and December, when three types of derivative contracts—index options, index futures and single stock options— expire simultaneously. Triple witching is the simultaneous expiration of stock options, stock index futures, and stock index options contracts, all on the same trading day. This happens four times a year, on the third Friday of March, June, September, and December.

We do not include the universe of companies or financial offers that may be available to you. She holds a Bachelor of Science in Finance degree from Bridgewater State University and helps develop content strategies. The Invesco QQQ Trust (QQQ) has carved a more bullish price pattern than its rival, posting a series of new highs into October 2018. It sold off through the fourth quarter, coming to rest at a 15-month low in the $140s, and bounced back to the high in April 2019. Price action then eased into a triangular pattern at resistance, finally yielding an October breakout that booked impressive gains into the February 2020 high at $237. Triple Witching occurs on the third Friday of March, June, September, and December.

These examples underscore the importance of caution and risk management during triple witching. While triple witching can be intimidating, it’s also an opportunity for prepared traders. If you understand the dynamics of triple witching and have a sound trading plan, you can use this volatility to your advantage. The triple witching day of March 17, 2000, coincided with the peak of the dot-com bubble.

However, in 2020, OneChicago, the exchange where single stock futures were traded shut down. While single stock futures trade elsewhere internationally, they no longer trade in the United States. The last hour of trading can be especially volatile as investors Forex backtesting software scramble to exit positions before the market closes.

The views expressed in this material are solely those of the author and/or Seasonax and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity.

What a Triple Witching Day Means for the Stock Market

Any changes in the indexes leads to portfolio adjustments by index-based securities such as index funds. Another aspect to consider on how triple witching could indirectly impact markets is to look at index rebalancing. Index providers periodically tweak the constituents and weights accorded to those constituents in the index based on their methodology.

The Triple Witching Effect: How Witching Days Shape Market Behavior

Last Thursday marked the unofficial start of triple witching options expiration, with the rollover of June futures contracts into the September forward month at many brokers. The period from the rollover through this Friday’s expiration have a well-earned reputation for whipsaws and reversals, raising the potential for high volatility. The CBOE S&P 500 Volatility Index (VIX) is sounding this message loud and clear, with the “fear gauge” lifting to a two-month high above $40. One of the primary implications of a Triple Witching Day is the surge in trading volume and market volatility. Traders and institutional investors scramble to offset, close, or roll over their positions. On the expiration date, futures and options (if exercised), must be settled which means either the underlying asset needs to be delivered or the settlement is made using cash.

Investors may also choose to rollover their derivative contracts, which means closing out this particular contract that is successfully outsource software development about to expire and entering into a similar contract that expires at a later date. Triple witching is an unusual market phenomenon that can cause increased volatility, though it happens only four times per year. Triple witching can offer an opportunity for investors to take advantage of a more volatile market and put more money to work. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional. Triple witching is the third Friday of March, June, September, and December. The terms “triple witching” and “quadruple witching” are often used to describe occasions on the third Friday of March, June, September, and December.