Quadruple Witching corresponds to an exceptional trading day during which four types of derivative products expire simultaneously.
The expression can make you smile. But investors are wary of these stock market days when trading volumes and volatility can reach record highs.
These dates qualify a very particular period in which events move in the markets, for technical reasons. Let's look in more detail at what these dates represent and how they impact the market.
What is quadruple witchcraft?
The quadruple days of Witchcraft take place on the third Fridays of March, June, September and December and therefore coincide with the end of the mandate.
These days are quite exceptional since many derivatives contracts expire on this date.
Therefore, it logically leads to major stock market movements. In particular, investors must unwind their positions or “roll over” them until the next expiration date.
These four Witches Fridays are therefore characterized by a particularly high transaction volume, as traders make technical adjustments when buying or selling.
Finally, we also talk about the “quadruple witching hour.” It corresponds to the last hour of transactions on these particular days, a crucial moment in which everything happens and where we often see significant discrepancies due to transaction volumes.
Quadruple Witches Dates 2024
Quadruple Witch Trading Days take place on the third Friday of March, June, September and December. These are the key dates when traders should pay close attention to market movements. For 2024, the quadruple witchcraft dates will be March 15, June 21, September 20, and December 20.
Is Quadruple Witchcraft Bullish or Bearish?
Quadruple Witching itself is neither inherently bullish nor bearish. The impact on the market can vary: some quadruple witch days experience significant rises and others are characterized by declines. It largely depends on the current market sentiment, positions being closed and how traders decide to manage their portfolios on those days.
Quadruple story of witchcraft
It was in 2002 when the first “Day of the Four Witches” took place. Before that year, it was just Triple Witching, as the first stock futures were traded in 2002. Triple Witching is similar to Quadruple Witching, but involves only three types of financial contracts that expire. It predates the concept of quadruple witching, which added individual stock futures to the mix.
Types of contracts involved in fourfold witchcraft
These days four derivative products expire simultaneously. These include stock and index options, as well as stock and index futures contracts. If all options and index futures expire every month, stock futures only expire every three months. It is the conjunction of the four events that only occurs once a quarter.
- storage options
- Index options
- index futures
- individual stock futures
Storage options
Stock options are contracts that give the holder the right, but not the obligation, to buy or sell a particular stock at a predetermined price (the strike price) before the contract expires.
There are two main types: call options, which give the right to buy, and put options, which give the right to sell. Stock options are a popular way for investors to speculate on stock price movements or hedge existing stock positions.
Index options
Index options are similar to stock options, but are based on market indices rather than individual stocks.
These financial derivatives give traders the right to buy or sell the value of an underlying index, such as the Dow Jones Industrial Average (DJIA) or the S&P 500, rather than trading specific stocks.
Index options are used to protect against market movements, speculate on future market direction, or gain exposure to a broad segment of the market with a single transaction.
Futures of Index
Index futures are standardized contracts to buy or sell a financial index at a future date and at a specific price. Unlike options, which give the right but not the obligation to buy or sell, futures contracts carry the obligation to fulfill the terms of the contract.
Traders use index futures to hedge against market risks, speculate on future movements of market indices, or adjust portfolio exposures without having to buy or sell the actual stocks that make up the index.
Individual Stock Futures
Single stock futures (SSF) are futures contracts on individual stocks. They obligate the buyer of the contract to buy and the seller to sell a specific number of shares of a particular stock at a predetermined future date and price.
SSFs combine the market exposure of equity trading with the leverage and flexibility of futures trading. They allow investors to speculate on the future direction of individual stock prices or hedge positions in their stock portfolios.
The convergence of these contract expirations into quad witching days significantly increases trading activity, as traders and investors close, roll over or adjust their positions.
This coordinated expiration can lead to increased liquidity and volatility in the markets, as the simultaneous settlement of these contracts requires a large number of buy and sell orders.
Understanding the market characteristics and functions of these contracts helps traders navigate the complexities of quad witching days, making informed decisions amid intense market activity.
Impact on the quad witch market
Traders often close or deploy futures contracts to manage their positions, resulting in increased trading activity. In fact, it is not uncommon to see extreme nervousness on the order books a few minutes before the deadline.
Traders cannot move to the next expiration, they must close their position before this is done automatically. And there is rarely liquidity. The last to arrive are therefore in difficulties, which sometimes creates unexpected incidents.
Additionally, arbitrage opportunities here can have their advantages and disadvantages. Quadruple Witching may present arbitrage opportunities as price discrepancies arise. However, higher volatility can also significantly increase risk.
Bottom line
Quadruple witching significantly affects stock and futures trading by converging the expiration of four types of contracts. This event increases trading volume and market volatility. It occurs on the third Friday of March, June, September and December, drawing traders' attention to possible changes in the market.
The impact of the quadruple warlock on the market can vary, neither strictly bullish nor bearish. Includes expiration dates for stock options, index options, index futures, and individual stock futures.
These contracts allow traders to speculate, hedge or leverage positions in individual stocks and market indices. Increased activity can create opportunities and risks, especially in arbitrage.
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