What a Triple Witching Day Means for the Stock Market

The trading212 review decline into March undercut the breakout level before an April recovery wave remounted support. The fund completed a volume-supported V-shaped recovery pattern in June, returning to the prior high and adding another 12 points into June 10’s all-time high at $248. The fund has given up about 16 points and failed the breakout in the past three sessions, reinforcing resistance in the upper $230s. A test at that level during the next uptick could be instructive, with a buying spike reinstating the breakout, while a reversal would drive another nail into the rally coffin. The fund completed the breakout in October, entering a strong uptrend that posted an all-time high at $339 in February.

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More often, traders will use terms such as “triple witching,” which fxtm review is the expiration of stock options, index options, and index futures on the same day. This event occurs on the third Friday of March, June, September, and December. Triple witching does not include all of the stock index futures and options contracts, so even though they are the most talked-about expiration events, they are not the only expiration days. 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.

For additional information about rates on margin loans, please see Margin Loan Rates. In this way you can see at a glance what the typical course of Apple share prices look like around the Witching Days. My primary focus was on understanding the impact on individual stock investments.

When these three types of contracts expire simultaneously, it creates a flurry of trading activity as investors close out existing positions, roll over contracts, or establish new ones. This surge in volume can lead to increased volatility, making the market prone to sharp price swings. Triple witching day is often accompanied by increased volatility and trading volume because traders and institutional investors must close or roll their expiring futures and options positions to the next contract expiration. Past results and past seasonal patterns are no indication of future performance, in particular, future market trends.

• This time is when there are likely heavier trading volumes as traders close out options and futures contracts before expiration.
• The term “triple witching” refers to the extra volatility resulting from the expiration dates of the three financing instruments, and is based on the witching hour denoting the active time for witches.
• Alternatively, if a large number of traders and investors decide to roll over their positions, it can create a run in the markets which essentially means a lot of people are buying.
• If you’re an investor or a trader, you have probably heard the term “Triple Witching” before.

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Triple Witching: Definition and Impact on Trading in Final Hour

In financial markets, the “witching hour” refers to the last trading hour on the third Friday of each month, when options and futures on stocks and indexes expire. This period is characterized by heavy trading volumes and increased volatility as investors rush to close or roll primexbt overview over positions before the end of the trading day. Double, triple, and quadruple witching can occur when two, three, or four asset class contracts expire simultaneously. These events, particularly triple witching, can be particularly volatile because of the concentration of expiring contracts.

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Although the name sounds ominous, triple witching day has nothing to do with Halloween or scary stories. Triple witching is simply the term given to four unique trading days each year. Triple Witching can increase trading volume and volatility, potentially causing prices to fluctuate more than usual. If you’re an investor or a trader, you have probably heard the term “Triple Witching” before. This term is used in the stock market to describe the expiration of three different financial instruments on the same day.

How Does Triple Witching Impact the Stock Market?

The event chart below shows the average course of Apple in the ten trading days before and after the Triple Witching expiration days. Given the increased volatility during triple witching, strategies that benefit from large price movements are often favoured. Rolling out or rolling forward, meanwhile, is when a position in the expiring contract is closed and replaced with a contract expiring at a later date.

Thus, volatility frequently spikes during this frenetic final trading hour across the derivatives markets and their underlying assets, as speculative plays and hedging activities spill over to equities to whip up the market further. The primary reason for the increased action on witching-hour days is that if the contracts are not closed before expiration, that could mean having to buy or sell the underlying security. For example, futures contracts that are not closed require the seller to deliver the specified quantity of the underlying security or commodity to the contract buyer. Options that are in the money, that is, profitable, may mean the underlying asset is exercised and assigned to the contract owner. In both cases, if the contract owner or contract writer can pay for security to be delivered, the contract must be closed out before expiration. Options traders also find out if their options expire in or out of the money.