Triple witching takes place four times each year and is often accompanied by increased volatility and trading activity in the market.
As options and futures contracts expire, investors must close or offset their position or roll out existing positions to a future expiration date. The position management amplifies volume, specifically at the end of the trading session Friday afternoon.
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.
Once a quarter, options contracts expire simultaneously for three major asset classes:
- Stocks - Stock options monthly contracts expire on the third Friday of each month, and weekly stock options expire on Friday each week.
- Stock indexes - Stock index options expire once a month on the third Friday.
- Stock index futures - Stock index futures options expire once a quarter on the third Friday of the month.
Triple witching is the quarterly event when the calendar aligns for all the prominent futures and options contracts to expire on the same day.
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.
The last hour of trading can be especially volatile as investors scramble to exit positions before the market closes.
When is triple witching?
Triple witching is the third Friday of March, June, September, and December. The specific date changes every year. Normal monthly and weekly options expiration still occurs on these dates.
Triple witching dates 2023
What happens to stocks on triple witching day?
Options expiration day is always the third Friday of every month and is typically volatile. On triple witching day, volume and volatility are amplified.
At the end of Friday afternoon’s trading session, trading action picks up as traders exit positions or buy and sell the underlying asset to offset options and futures contracts. The last hour of the day is known as the “witching hour.”
Triple witching day is consistently one of the most heavily traded days each year.
For example, in 2021, S&P 500’s average daily volume was 2.1 million. However, the average volume almost doubled to 4 million on the four triple witching trading days.
In addition to above-average volume, traders can expect increased volatility. SPX’s daily range expanded nearly 7% on triple witching days, and the average percentage return was -0.72% lower than the daily average.
Because multiple derivatives (futures and options) are connected to a similar underlying asset class, volume spikes and the above-average trading volume can create unpredictable price action.
As options and futures contracts expire, traders must close or roll out their existing positions to a future expiration date.
Writers and holders of futures and options contracts must exit their positions to avoid stock assignment if their position is in-the-money. Investors may also choose to exercise their contracts or accept assignment.
Investors, particularly large financial institutions, often offset the new positions by buying or selling the underlying asset as a hedge, which further fuels the increased volume and volatility.