What is Quadruple Witching? Quadruple Witching Dates 2024

“Quadruple witching” is a unique phenomenon in financial markets where four types of derivative instruments expire simultaneously. These instruments include stock index futures, stock index options, stock options, and single-stock futures. Occurring on the third Friday of March, June, September, and December each year, this simultaneous expiration can lead to a significant increase in trading volume and heightened volatility as traders and investors close out expiring positions and open new ones.

The impact of quadruple witching is often felt most acutely in the final hour of trading, known as the "witching hour," when rapid price movements can occur. 

Quadruple witching is a phenomenon in the financial markets where four types of derivative instruments—stock index futures, stock index options, stock options, and single-stock futures—expire simultaneously. The convergence of these expirations often catalyzes increased trading volumes and volatility as a wide spectrum of market participants close out expiring positions and open new ones. 

Quadruple witching events can be especially chaotic, and are therefore conducive to high-magnitude price swings. As a result, there’s the potential for temporary distortions in the market. For this reason, quadruple witching events may present attractive opportunities to build upon an existing position, or to initiate new ones, especially for those market participants that are comfortable trading in high-volatility conditions. 

Outlined below are more details on quadruple witching, including some of the key items that market participants can consider leading up to - and during - a quadruple witching event. 

It’s important to note, however, that the actual trading conditions on a quadruple witching aren’t set in stone, they can vary widely due to the unique market conditions observed on that specific trading day. 

Background

Key Expirations on Quadruple Witching: 

• Stock index futures (e.g., S&P 500 futures)

• Stock index options (e.g., NASDAQ 100 index options)

• Stock options (e.g., options on Apple)

• Single stock futures (e.g., futures on Tesla)

Key Considerations for Quadruple Witching

The Week of Quadruple Witching: 

• As the day of quadruple witching approaches, market participants usually start reviewing their existing portfolios and making plans/adjustments as necessary.

The Day Before Quadruple Witching:

• On the Thursday before quadruple witching, some market participants may elect to roll or close their positions to avoid the risk of price swings on the actual day of quadruple witching. Others may elect to do so on Friday. 

• This activity may result in increased trading volumes, and potentially erratic price movement, as positions are closed and adjusted.

Day of Quadruple Witching:

• Early in the trading day, there may be a noticeable uptick in volatility as market participants adjust their portfolios based on the latest market data and economic indicators.

• As the market enters the last hour of trading (e.g. the "witching hour"), volatility may spike further as investors and traders rush to close and adjust their positions before the end of the trading day. 

No matter the circumstances, it's essential to approach each trading day with a balanced mindset, ensuring that you consistently apply a disciplined and systematic approach to your trading activities. This commitment helps in maintaining focus and adhering to proven strategies, regardless of market conditions.

From that perspective, quadruple witching is no different than any other trading day. One can filter for attractive trading opportunities and potentially capitalize upon them, as with any other day on the trading calendar.

One thing to keep in mind, however, is that quadruple witching days may be characterized by elevated volatility, and the increased potential for sudden, unexpected moves. For this reason, investors and traders should be especially mindful of risk management practices on the day quadruple witching. 

For example, an investor/trader might scale back the size of his/her trades on quadruple witching to limit exposure to an adverse move. Or, some investors and traders might elect to tighten their risk management approach on quadruple witching, to help defend against erratic moves in the market.

As with any other trading day, investors and traders should prepare for quadruple witching by outlining their targeted investing/trading approaches, while also defining their risk appetites. 

Quadruple witching is often characterized by elevated volatility, which means investors and traders may want to consider the tactics highlighted below during quadruple witching events:

• Adjusting Position Sizes: Reducing the size of trades on volatile trading days can limit risk. Smaller positions are easier to manage and less likely to result in significant losses.

• Setting Appropriate Stop-Losses: Given the potential for high-magnitude moves, market participants may want to deploy stop-loss orders to ensure they can exit positions at the desired levels. 

• Using Limit Orders: To avoid slippage (where a market order is executed at a worse price than expected), investors and traders may elect to utilize limit orders to help ensure that trades are executed at the desired prices.

• Planning Entry and Exit Points: Having a clear entry and exit strategy can help traders capitalize on the volatility without getting caught in unfavorable positions.

• Monitoring the Market Closely: Increased vigilance is paramount on days when high-magnitude moves are more likely to materialize. 

In terms of specific strategies, quadruple witching may offer increased trading opportunities, depending on one’s unique trading style, market outlook, and risk appetite. Listed below are some day trading-focused strategies that might be considered for quadruple witching:

• Scalping: This strategy involves making numerous trades to capture small price changes, often holding positions for a very short period. During quadruple witching, the increased volatility and volume could provide more opportunities for scalpers to profit.

• News Trading: Traders employing this strategy capitalize on price movements driven by news releases. On quadruple witching days, the heightened market sensitivity to news may amplify reactions to announcements, potentially leading to attractive trading opportunities.

• Trend Trading: This approach focuses on identifying and following market trends. The clear trends that can emerge during the volatility of quadruple witching may therefore provide a conducive environment for trend traders to enter and exit trades more effectively.

• Mean Reversion: This strategy is based on the assumption that prices will revert to their average. During quadruple witching, extreme price movements may create pronounced deviations from the mean, offering mean reversion traders opportunities to profit as prices bounce back to “normal” levels.

"Quadruple witching" occurs when four distinct types of derivatives—stock index futures, stock index options, stock options, and single-stock futures—all expire at the same time. This event happens on the third Friday of March, June, September, and December, leading to notably higher trading volumes and increased market volatility. 

The increased volatility often observed on quadruple witching arises from the simultaneous expiration of multiple derivatives, and the associated portfolio adjustments made by institutional investors, hedge funds, index fund managers, and other market participants. The effects of quadruple witching are particularly intense during the market's last trading hour, commonly referred to as the "witching hour," when sharp price swings can occur, as market participants finalize their positioning before the close of trading. 

For investors and traders, quadruple witching offers both opportunities and challenges. The surge in liquidity can be advantageous for executing large volume trades more efficiently, while the increased volatility may allow savvy traders to capitalize on price anomalies and discrepancies. In general, quadruple witching may produce a high number of attractive trading opportunities, especially for those that embrace day trading strategies such as scalping, news trading, trend trading, and mean reversion.