BROWSE

Quadruple Witching

Definition

Triple witching hour is the last hour of the stock market trading session on the third Friday of every March, June, September, and December. Those days are the expiration of three kinds of securities...

What is 'Quadruple Witching'

Quadruple witching refers to an expiration date that includes stock index futures, stock index options, stock options and single stock futures. While stock options contracts and index options expire on the third Friday of every month, all four asset classes expire simultaneously on the third Friday of March, June, September and December. Much of the action surrounding futures and options on quadruple witching days is focused on offsetting, closing or rolling out positions, as well as arbitrage trades, with the result being elevated volume, particularly in the last hour of trading.

Explaining 'Quadruple Witching'

Quadruple witching replaced triple witching days when single stock futures started trading in November 2002. Despite the expiration of four contract types, the terms triple witching and quadruple witching are often used interchangeably. One of the primary reasons for the heavy volume on these expiration days is trades on underlying securities are automatically executed on options expiring in the money and expiring futures contracts. Under certain circumstances, positions are opened for the purpose of executing these trades, but derivative-based traders seeking to avoid principal-based transactions must take action to prevent open positions in their portfolios from expiring.

In-the-Money Options

Call options expire in the money when the price of the underlying security is higher than the strike price in the contract. Put options are in the money when the stock or index is priced below the strike price. In both situations, the expiration of in-the-money options results in automatic transactions between the buyers and sellers of the contracts.

Closing and Rolling Out Futures Contracts

A futures contract contains an agreement between the buyer and the seller in which the underlying security is to be delivered to the buyer at the contract price at expiration. For example, Standard & Poor’s 500 E-mini contracts, which are 20% of the size of the regular contract, are valued by multiplying the price of the index by 50. On a contract priced at 2,100, the value is $105,000, which is delivered to the contract owner if the contract is left open at expiration. In this situation, contract owners can avoid delivery by either closing their contracts or rolling them out to a forward month.

Arbitrage Opportunities

Over the course of a quadruple witching day, transactions involving large blocks of contracts can create price movements that may provide arbitrageurs the opportunity to profit on temporary price distortions. Arbitrage can rapidly escalate volume, particularly when high volume round trips are repeated multiple times over the course of trading on quadruple witching days.


Further Reading


E. Banks, The Palgrave Macmillan Dictionary of Finance, Investment and Banking© Erik Banks 2010
link.springer.com [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …

Millennial meanderingsMillennial meanderings
search.proquest.com [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …

Order consolidation, price efficiency, and extreme liquidity shocksOrder consolidation, price efficiency, and extreme liquidity shocks
www.jstor.org [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …

Impact of derivatives trading on emerging capital markets: A note on expiration day effects in IndiaImpact of derivatives trading on emerging capital markets: A note on expiration day effects in India
papers.ssrn.com [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …

Impact of derivatives trading on emerging stock markets: Some evidence from IndiaImpact of derivatives trading on emerging stock markets: Some evidence from India
link.springer.com [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …

Impact of Expiration on Spot Market Volatility: A Study of NSE Nifty.Impact of Expiration on Spot Market Volatility: A Study of NSE Nifty.
search.ebscohost.com [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …

Long-term effects of expiration of derivatives on Indian spot volatilityLong-term effects of expiration of derivatives on Indian spot volatility
www.hindawi.com [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …

AN EMPIRICAL STUDY ON EXPIRATION DAY EFFECTS IN STOCK INDEX FUTURES IN INDIAN STOCK MARKET.AN EMPIRICAL STUDY ON EXPIRATION DAY EFFECTS IN STOCK INDEX FUTURES IN INDIAN STOCK MARKET.
search.ebscohost.com [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …

Understanding the volatility characteristics and transmission effects in the Indian stock index and index futures marketUnderstanding the volatility characteristics and transmission effects in the Indian stock index and index futures market
papers.ssrn.com [PDF]
… QUADRUPLE WITCHING DAY A single business day when INDEX FUTURES, index OPTIONS, individual EQUITY options and SINGLE STOCK … See also TRIPLE WITCHING DAY … QUANTITY THEORY OF MONEY An economic theory put forth by philoso- pher David Hume in the …



Q&A About Quadruple Witching


Is there evidence that quadruple witching leads to increased profitability?

There is little evidence that quadruple witching leads to increased profitability since market gains are usually modest.

What are some potential benefits of quadruple witching?

Arbitrageurs can profit on temporary price distortions that occur during this time.

Who created E-mini Nasdaq 100 Futures contracts in 1998?

CME Group did so in 1998

How do you avoid delivery of a futures contract on a quadruple witching day?

You can close or roll out your position to another month.

Who created E-mini Russell 2000 Futures contracts in 1999 ?

CME Group did so in 1999

What happens when call options expire in the money?

The contract owner must deliver the underlying security at the strike price of the contract.

How does volatility affect profits from quadruple witching days?

Increased volatility can offer the potential for gains but losses can be equally evident.

What is quadruple witching?

Quadruple witching refers to an expiration date that includes stock index futures, stock index options, stock options and single stock futures.

Why does volume tend to increase towards the end of trading sessions on quadruple witching days ?

Because traders need time to offset their positions before expiry occurs .

How many contracts can be traded on a quadruple witching day?

There are 5 E-mini contracts in the S&P 500.

What happens when put options expire in the money?

The contract owner receives cash from the seller of their option if it is exercised.

When does all four asset classes (stock index futures, stock index options, single stocks and stock options) expire simultaneously ?

On March 21st , June 21st , September 21st and December 21st

Which asset class has been known for creating volatility during quadrup""le ""witching sessions ?

Single stocks have been known for creating volatility during quadrup""le ""witching sessions .

Who created E-mini Dow Jones Industrial Average Futures contracts in 2006 ?

CME Group did so in 2006