What is a triple witching and how can you trade it?

What is a triple witching?

Triple witching is when the expiration of stock options, stock index futures, and stock index options all fall on the same day. It only happens four times a year – on the third Friday of March, June, September, and December – which can create a spike in trading volume and volatility.

Sometimes triple witching is called quadruple witching, as single stock options were added in 2002 and also expire on the same quarterly dates.

Unlike investing, using derivatives like futures and options carry an expiry date. This has the benefit of enabling traders to speculate on what the price of the underlying market will be over a specific period. Once the expiry date arrives, any contract holders will need to buy or sell the underlying asset in question.

On a triple witching day, nearly double the number of contracts expire than in any other week, which is what creates the market movements that triple witching day is known for.

The underlying markets will see volatility in the week leading up to triple witching, but the most active period is the final hour before the market closes on the day, known as the witching hour. This is when parties rush to close their positions, offset them or roll them over. Even those who have only opened speculative positions on the futures or options contracts will need to decide whether to close, offset, or roll over their trade at expiry.

Sometimes, triple witching events can come and go with little volatility. This is especially true after weekly and daily expirations became available, as activity became more spread out. However, it will all depend on the context in which the event happens, so it’s important to look at news and analysis in the run-up to the witching day.

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Triple witching calendar 2023-2024

• March 17, 2023
• June 16, 2023
• September 15, 2023
• December 15, 2023
• March 15, 2024
• June 21, 2024
• September 20, 2024
• December 20, 2024

Options expiring on triple witching

When you’re the holder of a stock option or stock index option – having bought either a call or put option – your decision of what to do on triple witching day will depend on its state of moneyness. If your option is in the money (ITM), you’ll likely want to exercise it – buying or selling the underlying shares or index.

Alternatively, if the option was out of the money (OTM) at expiry, you might consider letting the contract expire worthless. In this case, you’d only incur the cost of the premium you paid to open the position and could take a new position on the next month’s expiry.

When you’re the seller of an option that expires on triple witching, you won’t have much choice over what happens to your position. Inherently selling options takes away your right to refuse to exchange your underlying asset at expiry – so if the option’s holder wants to execute the trade, you would be obliged to fulfil your end of the contract. But whatever happens, you’ll receive a premium.

Futures expiring on triple witching

A futures contract differs from an option, in that it has to be fulfilled on expiry regardless of whether the outcome is profitable. There are three ways to navigate the expiry of a futures contract on triple witching:

Settle the position – either physically by arranging the delivery of the asset or with the equivalent amount in cash

Roll the position over – this pushes the expiry of the contract back into the next month. Doing so will likely incur a cost to account for the differences in price

Offset the position – you could buy or sell the equivalent amount to balance your futures trade before the expiry.