This is an event that happens four times a year and is something that should be marked on the calendar if you pay regular attention to what the market is doing. The dates change every year, but is always the third Friday of March, June, September, and December.
What happens on those days is stock options, index options and index futures all expire on the same day. This convergence can lead to higher trading volumes and increased volatility as traders adjust or close positions, making the market more active and, at times, unpredictable. While it may sound dramatic, Triple Witching is a routine part of the financial calendar and an important day for traders and investors to be aware of.
Theoretically speaking, options and futures prices are driven by stock prices. However, that is not always the case. There are times that it is the other way around. This is what sometimes happens during the “Triple Witching.” Without going into too much detail, options and futures are contracts on the right to buy or sell stocks or commodities at certain price points. Traders use them for both speculation and hedging on trades. When these are closed out, they can just expire, roll into new contracts or they need to be exercised. When they are exercised, it causes real trades in the underlying stock…hence the increased volatility and price swings during these days.
