GET YOUR BROOMSTICKS READY

By Megan Kowalski on September 17, 2021

Hello my pretties, and welcome back to The Sharpe Investor. Today I have a fun Halloween-themed term that I thought would be fun to cover. This is a term that will hands down make your “cool” factor jump tenfold at the next Halloween party. The term I am referring to is “Quadruple Witching.”

Now I know this sounds ominous, but it is not as scary as one may think. It refers to a day where four different derivatives (stock options, index options, stock futures, and index futures) expire simultaneously.

Where did the term “Quadruple Witching” originate?

This term originated from the concept of the “Witching Hour,” which according to folklore, is a time when powers are the strongest. The term Quadruple Witching is meant to illustrate where all four derivatives come due on the same day, highlighting the increased activity. Below is a visual showing when these derivatives come due.

What does Quadruple Witching mean for you?

If you are not actively trading these asset classes, it does not necessarily rule you out. Quadruple Witching is an important term to be aware of due to its effects on the market. Typically, when options or futures contracts come due, it leads to increased trading volumes.

                Why…

                Example: 1 stock option is equal to 100 shares of that specific stock

With the increased volume of trading, there is a tendency for increased volatility on those particular trading days (occurs each quarter on the third Friday). Accordingly, it is essential to remember that this increased activity could simply be these contracts coming due and not anything specific to the traded company. If there is excessive volatility that can be expected, it is critical to consider this before making any drastic trades.

I hope that today’s blog has helped sharpe-n your knowledge of the investment landscape. If you have any topic suggestions or have further questions, please reach out to mkowalski@hightoweradvisors.com.