Triple Witching Definition

Options calendar 2020. Expiry calendar

Triple witching is the simultaneous expiration of stock optionsstock index futuresand stock index option contracts all on the same day.

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Because three option classes expire all on the same day, it can cause increased trading volume and unusual price action in the underlying assets. Similarly, double witching occurs when two classes of option expire on the same date, and quadruple witching when four do. Key Takeaways Triple witching is the quarterly expiration of stock options, stock index futures, and stock index option contracts all on the same day.

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Triple witching happens four times a year: on the third Friday of March, June, September, and December. Triple witching days, particularly the final hour of trading preceding the closing bell—called the "triple witching hour"—can result in escalated trading activity and volatility as traders close, roll out, or offset their expiring positions.

Understanding Triple Witching Triple witching days generate trading activity and volatility because contracts that are allowed to expire may necessitate the purchase or sale of the underlying security.

A Downside Warning went into effect with two warnings at the close on Sept 3. Expiring cash settled currency options cease trading at 12 00 p m.

While some derivative contracts are opened with the intention of buying or selling the underlying security, traders seeking derivative exposure only must close, roll out, or offset their open positions prior to the close of trading on triple witching days.

Triple witching days, particularly the final hour of options calendar 2020 preceding the closing bellknown as the "triple witching hour," can result in escalated trading activity and volatility as options calendar 2020 close, roll out, or offset their expiring positions.

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Offsetting Futures Positions A futures contractwhich is an agreement to buy or sell an underlying security at a predetermined price on a specified day, mandates the agreed-upon transaction to take place after the expiration of the contract.

To avoid this obligation, the contract owner closes the contract by selling it prior to expiration. This is referred to as rolling out a contract.

Expiring Options Options that are in the money ITM present a similar situation for options calendar 2020 of expiring contracts. For example, the seller of a covered call option can have the underlying shares called away if the share price closes above the strike price of the expiring option.

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In this situation, the option seller has the option to close the position prior to expiration to continue holding the shares, or allow the option to expire and have the shares called away.

Triple Witching and Arbitrage While much of the trading in closing, opening, and offsetting futures and options contracts during triple witching days is related to the squaring of positions, the surge of activity can also drive price inefficiencies, which draws short-term arbitrageurs.

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These opportunities are often the catalysts for heavy volume going into the close on triple witching days, as traders attempt to profit on small price imbalances with large round-trip trades that may be completed in seconds. Article Sources Investopedia requires writers to use primary sources to support their work.

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