Triple witching refers to the quarterly event in financial markets when stock options, stock index futures, and stock index options all expire simultaneously.

This event occurs on the third Friday of March, June, September, and December, and is also sometimes called “triple expiration” or “triple witching day.”

Triple witching can lead to increased trading volume and market volatility, as traders close, roll over, or adjust their positions in these derivative contracts.

The simultaneous expiration of these financial instruments can cause significant price fluctuations in the underlying stocks and indices, especially in the final hour of trading on triple witching day, which is sometimes referred to as the “witching hour.”

What is triple witching?

The term “triple witching” has its roots in the 1980s when the simultaneous expiration of these three financial instruments was first observed.

The simultaneous expiration was a result of the standardized expiration dates set by the exchanges for options and futures contracts.

Triple witching is sometimes referred to as “triple expiration” or “triple witching day.”

Why should traders care about triple witching?

During triple witching, investors and traders may close, roll over, or adjust their positions in stock options, stock index futures, and stock index options.

The increased activity can cause significant price fluctuations in the underlying stocks and indices, especially in the final hour of trading on triple witching day, which is sometimes referred to as the “witching hour.”

As a result, market participants can expect higher trading volumes and market volatility during these periods.

While the impact on long-term investors may be limited, short-term traders and those with open positions in options or futures contracts should be aware of the potential risks and opportunities associated with triple witching.

How to trade triple witching

It is important to note that triple witching primarily affects the options and futures markets, and its direct impact on individual stocks may be limited.

For long-term investors, the impact of triple witching may be minimal, as the fluctuations tend to be short-lived and may not significantly affect the overall market trend.

However, for short-term traders and those with open positions in options or futures contracts, it is crucial to be aware of the increased volatility and potential for rapid price movements.

Some strategies to navigate triple witching include:

  • Monitoring open positions: Traders should closely monitor their open positions in options and futures contracts and consider closing or rolling them over before the expiration date to avoid unwanted risks.
  • Using limit orders: Placing limit orders can help traders control the price at which they buy or sell securities, potentially minimizing the impact of sudden price fluctuations.
  • Staying informed: Keeping an eye on market news and developments during triple witching can help traders identify potential opportunities and risks.