Triple witching is the simultaneous expiration of stock options, stock index futures, and stock index options contracts, all on the same trading day. This happens four times a year, on the third Friday of March, June, September, and December. The expected expiration date for the three might increase trading volume and cause unusual price changes in the underlying assets.
Key Takeaways
- Triple witching is the expiration on the same day of stock options, stock index futures, and stock index options contracts.
- Triple witching occurs quarterly—on the third Friday of March, June, September, and December.
- Triple-witching days can cause a spike in trading activity as traders close, roll out, or offset their expiring positions, particularly in the final hour of trading.
Understanding Triple Witching
Triple-witching days generate more trading activity and volatility since contracts allowed to expire cause buying or selling of the underlying security. While some derivative contracts are opened with the intention of trading the underlying security, traders seeking derivative exposure only must close, roll out, or offset their open positions before the close of trading on triple-witching days.
Triple-witching days, particularly the final hour of trading preceding the closing bell (4 p.m. Eastern time), known as the triple-witching hour, can spike trading activity and volatility as traders close, roll out, or offset their expiring positions.
Single-stock futures, last traded in the U.S. in 2020, were typically grouped with stock options, index options, and index futures, giving rise to the term “quadruple witching.” But they never drew nearly as much capital or trading interest as the other types of equities derivatives, most notably stock options.
Offsetting Futures Positions
A futures contract, an agreement to buy or sell an underlying security at a set price on a specified day, mandates that the transaction take place after the expiration of the contract.
For example, one E-mini S&P 500 futures contract is valued at 50 times the value of the index. If the S&P 500 is at 4,000 at expiration, the value of the contract is $200,000, the amount the contract's owner must pay if the contract expires.
To avoid this, the contract owner closes the contract by selling it before the expiration. After closing the expiring contract, exposure to the S&P 500 index can be continued by buying a new contract in a forward month. This is known as “rolling out” a contract. Much of the action surrounding futures and options on triple-witching days is focused on offsetting, closing, or rolling out positions.
On the expiration date, contract owners can decide not to take delivery and instead close their contracts by booking an offsetting trade at the prevailing price, settling the gain or loss from the purchase and sale prices.
Traders may also extend the contract by offsetting the existing trade and simultaneously booking a new option or futures contract to be settled in the future, which is called“rollingthe contract forward.”
Expiring Options
Options that are in the money are similar for those holding 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.
In this situation, the option seller can close the position before expiration to continue holding the shares or let the option expire and have the shares called away.
Call options expirein the money, that is, are profitable when the underlying security price is higher than the strike price in the contract. Put options are in the money when the stock or index is priced below the strike price. In both situations, the expiration of in-the-money options causes automatic transactions between the buyers and sellers of the contracts. As a result, triple-witching dates are when all three types of contracts; stock index futures, stock index options, and stock options all expire on the same day causing an increase in trading.
Triple Witching and Arbitrage
Though much of the trading in closing, opening, and offsetting futures and options contracts during triple-witching days is related to squaring positions, the surge of activity can also produce price inefficiencies, which can draw in short-term arbitrageurs—those who seek to profit from them.
These opportunities might be catalysts for heavy volume going into the close on triple-witching days as traders look to profit on small price imbalances with large round-trip trades completed in seconds.
Despite the overall increase in trading volume, triple-witching days do not necessarily lead to highvolatility.
An Example of Triple Witching
Friday, March 15, 2019, was the first triple-witching day of 2019. Trading volume leading up to this third Friday of the month had increased market activity. Trading volume March 15, 2019, on U.S. market exchanges was10.8 billion shares, compared with an average of 7.5 billion average the previous 20 trading days.
For the week leading into the triple-witching Friday, the S&P 500, Nasdaq, and the Dow Jones Industrial Average (DJIA) were up 2.9%, 3.8%, and 1.6%, respectively. However, it seems much of the gains happened before the triple-witching Friday because the S&P 500 and DJIA increased only 0.50% and 0.54%, respectively, that day.
Triple-Witching Dates
Triple witching happens four times a year (or once a quarter) on the third Fridays of March, June, September, and December.
2024
- March 15
- June 21
- Sept. 20
- Dec. 20
2025
- March 21
- June 20
- Sept. 19
- Dec. 19
2026
- March 20
- June 19
- Sept. 18
- Dec. 18
Triple vs. Quadruple Witching
The terms "triple witching" and "quadruple witching" are often used to describe occasions on the third Friday of March, June, September, and December. For about 20 years, they had one difference, but since 2020, they have referred to the same event.
Triple witching occurs when three types of financial contracts expire simultaneously:
- Stock options are contracts that give the holder the right to buy or sell a stock at a specified price.
- Stock index options: Options on stock indices like the S&P 500 or Dow Jones Industrial Average.
- Stock index futures: Futures contracts based on stock indices that obligate the buyer to purchase or the seller to sell the index at a predetermined price on a given date.
The fourth type of contract involved in quadruple witching, single-stock futures, hasn't traded in the U.S. since 2020. Any references to quadruple witching are about the three types of contracts above expiring simultaneously.
Frequently Asked Questions
What Is Witching and Why Is It Triple?
In folklore, the witching hour is when evil things may be afoot. Derivatives traders have colloquially applied this to the hour of contract expiration, frequently on a Friday at the close of trading. It's triple for the three types of contracts expiring simultaneously: listed index options, single-stock options, and index futures.
Can Triple Witching Impact Stocks Beyond Broad Market Volatility?
Triple witching can influence individual stocks such as those with large options or futures contracts set to expire. As traders adjust or close their positions, there can be unusual movement in the stock’s price and volume. This is usually more pronounced in stocks with smaller market caps or those that trade heavily in the derivatives market. Caution is in order at this time since these price changes don't often reflect shifts in the underlying company's fundamentals.
Are There Strategies Traders Can Use For Triple-Witching Dates?
One strategy is to look for arbitrage opportunities from price discrepancies between the stock market and derivative markets. Also, some traders might take up a straddle strategy, holding both a put and a call option with the same strike price and expiration date, to try to profit from large price swings in either direction. However, these strategies have risks and are not recommended for less experienced traders.
What Are Some Price Abnormalities Seen on Triple-Witching Dates?
An interesting phenomenon is that often the price of a security may artificially tend toward a strike price with large open interest asgamma hedgingtakes place. Gamma hedging works to minimize the risk associated with changes in delta, providing a more stable options portfolio. Changes in delta, in turn, are most simply defined as the change in an option's price sensitivity to any changes in the underlying asset's price. The gamma hedging can lead the price to“pin” the strikeat expiration. Pinning the strike, when an underlying security's market price closes very near the strike price of heavily traded options, can bring "pin risk" for options traders uncertain whether to exercisethe long options that have expired in the money or are very close to it. This is because they are also unsure how many of their similar short positions will beassigned.
The Bottom Line
Triple witching refers to the third Friday of March, June, September, and December when three kinds of securities—stock market index futures, stock market index options, and stock options—expire on the same day. Derivatives traders pay close attention on these dates, given the potential for increased volume and volatility in the markets.
