What does Quad Witching mean?
What are the quadruple witching dates?
What are the essential elements you should know!
In this article, I will break down the meaning of Quad Witching so you know all there is to know about it!
Keep reading as I have gathered exactly the information that you need!
Let me explain what quad witching is and why it’s important!
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Table of Contents
What Is Quad Witching
Quad witching, or quadruple witching, is a term used in derivative trading to refer to a date when stock index futures, stock index options, stock options, and single stock futures expire.
In other words, on the quadruple witching day, you have four different types of derivative instruments that expire.
Every year, investors and derivative traders expect to see a quad witching day on the third Friday of the month of March, June, September, and December.
On quad witching dates, you should expect to see a higher trading volume resulting from the high volume of derivative contracts expiring and investors offsetting their positions to materialize their profits.
Quad Witching Name
The reason it’s called “quad witching” when all four derivative products expire on the same day is to refer to the term “witching hour” of midnight or “devil’s hour”, the moment when supernatural beings are thought of roaming the earth.
When the supernatural roam the earth, they bring bad luck and havoc to the world.
Similarly, traders consider that when all four derivative products expire at the same time, it brings volatility and havoc to the markets.
Why Is Quadruple Witching Important
Investors, derivatives traders, and professionals should be mindful of the quad witching trading days.
Since there are four different classes of derivatives contracts expiring all on the same day, the market will see a higher level of activity and volatility.
The volatility comes from the fact that some investors exercise their options to cash out their profits while others look at taking offsetting positions within the derivatives markets.
This leads to both volatility and somewhat unpredictability in the stock price movement.
By knowing that there are four quad witch days in a given year, investors can anticipate these more volatile days and plan ahead of time.
Some traders may want to take advantage of the price volatility to earn some profits while other investors may prefer not to trade on those days and let the markets settle.
How Quad Witching Works
Let’s see how quad witching works in practice to better understand the concept.
Quad witch, quadruple witching hour, quad witching dates, are all different ways that traders, investors, and derivatives trades may refer to the term “quad witching”.
Essentially, quadruple witching refers to the date on which four different derivative instruments expire simultaneously, namely:
- Option contracts
- Index options
- Single stock futures
- Index futures
Options contracts are derivative contracts where the underlying securities are generally stocks.
You can have call options (where you are given the right to purchase the stocks at a predetermined price) or put options (where you can sell the stocks at a predetermined price).
Index options are derivative contracts where the investor is given the right to transact the index such as the S&P 500.
An investor may transact the index depending on the index price on the expiration of the derivative contract.
Single stock futures are contracts allowing an investor to buy or sell a specific asset at a predetermined price by a certain date.
Finally, the index futures are contracts where the investor buys or sells financial or stock index with the contract settling on a future date.
Now that we know the different four types of derivative contracts that expire on the quad witching day, let’s see what are those days.
Quadruple Witching Days
Every year, investors and traders expect four quad witching days.
The quad witching days are as follows:
- Third Friday of March
- Third Friday of June
- Third Friday of September
- Third Friday of December
Quadruple Witching Hour
Quadruple witching hour refers to the last hour of the trading session on the quadruple witching day.
In other words, it’s the last hour that traders and investors have to decide to exercise their options, take an offsetting position, or let their options expire.
Quad Witching Meaning Takeaways
So there you have it folks!
What is quadruple witching day in simple terms?
When is quad witching?
Quadruple witching refers to four days in any given year when four different types of derivative contracts expire at the same time.
The derivative contracts that expire are stock options, single stock futures, stock index futures, and stock index options.
The quad witching takes place every third Friday of March, June, September, and December in any given calendar year.
Due to the four different classes of derivative contracts expiring and the volatility it causes it the markets, the term coined to refer to this is “quadruple witching” referring to the quad witching hour when supernatural beings are said to roam the earth and bring chaos.
Now that you know what is quadruple witching Friday, how it works, and why it’s important, good luck in preparing for the “witching day”!
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