What Is Triple Witching?

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Definition

Triple Witching occurs on the third Friday of March, June, September, and December, when three types of derivative contracts—index options, index futures and single stock options— expire simultaneously. Typically, triple witching Fridays see a surge in trading volume.

Key Takeaways

  • Triple witching occurs expiry dates for three types of derivative contracts—index options, index futures and single stock options— coincide.
  • Triple witching happens four time in a year on every third Friday of March, June, September, and December
  • All derivative contracts must be settled by delivery of the underlying asset or be rolled over on the expiry date
  • Triple witching may see a surge in trading volumes and some market volatility as derivatives contracts are settled

How Triple Witching Works

Triple witching happens when the expiry date for three types of derivative contracts coincides. Before we understand the mechanics of triple witching, let's take a step back,

Derivative contracts, such as futures and options, derive their value from the price movements an underlying asset. They can be used to speculate or hedge investment bets. Futures and options contracts are agreements to exchange underlying asset at a future date and price. The date outlined in the contract is called the expiry date.

Note

Not all derivative contracts expire on the same day. There are other contracts that expire outside of the witching days. Derivates contracts could have weekly or monthly expiry dates as well.

Triple witching occurs when three types have expiry dates scheduled for the same day. Typically, this phenomenon occurs on the third Friday of the last month in a quarter. That means the third Friday in of March, June, September, and December.

The three types of derivative contracts that expire on triple witching are:

  • Stock Index Options: Call and put options where the underlying assets is an index such as the S&P 500. Index options give the owner the right, not the obligation to exercise the contract. The exercise decision depends on the strike price mentioned in the contract and the price of the underlying index.
  • Stock Index Futures: Stock index futures contracts where the underlying asset is also an index and they are an agreement (not an option) to buy or sell a stock index at a future date and a specific price.
  • Single Stock Options: Options contracts which give the holder the right to buy or sell the underlying stock of a single company.

On the expiration date, futures and options (if exercised), must be settled which means either the underlying asset needs to be delivered or the settlement is made using cash. Stock index futures and options are typically cash-settled, whereas you need to deliver the stock in case of single stock options.

Investors may also choose to rollover their derivative contracts, which means closing out this particular contract that is about to expire and entering into a similar contract that expires at a later date.

Note

You can choose to exercise your options prior to the expiration date if you own American options. Also, if it doesn't make sense, you can choose to let your options expire.

Quadruple Witching

With the addition of single stock futures contracts in 2002, which also expired on these days, triple witching was sometimes referred to as quadruple witching or quad witch—because now there were four types of contracts with simultaneous expiry.

However, in 2020, OneChicago, the exchange where single stock futures were traded shut down. While single stock futures trade elsewhere internationally, they no longer trade in the United States.

With single stock futures ceasing to trade, there are only three types of derivatives with concurrent expiry on four days of the year. Therefore, there is no more quadruple witching, only triple witching.

Triple Witching Impact on the Market

Triple witching is when futures traders will have to decide if they will roll their contracts over and maintain a position in a non-expired contract, or close their futures position, which could be buying or selling, depending on the direction of their original trade. 

Options traders also find out if their options expire in or out of the money. On such days, traders with large positions in these contracts may be financially incentivized to try to temporarily push the underlying market in a certain direction to affect the value of their contracts. The expiration forces traders to act by a certain day, causing trading volume in affected markets to rise. 

Note

Triple witching is often said to cause volatility in the underlying markets, and in the expiring contracts themselves, both during the prior week, and on the expiration day.

In some cases, this may be true, but triple witching can also be a rather calm event, with lower volatility and a statistical bias to the upside (at lease for S&P 500 futures) during the week of and on triple witching.

Another aspect to consider on how triple witching could indirectly impact markets is to look at index rebalancing. Index providers periodically tweak the constituents and weights accorded to those constituents in the index based on their methodology.

Liquidity generated by large trade volume during triple witching makes a good time for indexes to rebalance. Any changes in the indexes leads to portfolio adjustments by index-based securities such as index funds.

Note

Quarterly rebalance for the S&P U.S. Indexes and FTSE Global indexes coincide with triple witching Fridays. The annual Nasdaq 100 rebalancing occurs in line with the December triple witching Friday.

What to Watch Out For

Because of the increased volume, the chance of some abnormal price moves—and a statistical bias which may cause some day trading strategies not to work (which work during non-triple witching weeks/days)—some day traders recommend caution, and others recommend not trading at all.

How an individual day trader chooses to handle triple witching will depend on their trading style, trading strategies, and level of trading experience. New traders will want to be more cautious in the days leading up to and on Triple Witching Friday.

If a day trader opts to trade during these weeks, measures should be taken to ensure the strategy being used works in such an environment, or a new strategy can be constructed specifically for this week. Swing traders and investors are unlikely to be significantly affected by the event, but swing traders may wish to take note of any statistical biases present during the week of triple witching.

The Bottom Line

Triple witching does not include all of the stock index futures and options contracts, so even though they are the most talked-about expiration events, they are not the only expiration days. Short-term traders should adapt their strategies to these conditions, avoid trading, or reduce their position size if they notice their performance deteriorates during this time.

Frequently Asked Questions (FAQs)

When is triple witching in 2022?

Triple witching, typically, occurs on the third Friday of the last month in the quarter. That means the third Friday in March, June, September, and December. In 2022, triple witching Friday are March 18, June 17, September 16, and December 16.

How do you trade the triple witching hour?

Triple witching day occurs four times in a year when the expiration date of three types of derivatives coincides. Triple witching hour, typically, is referred to the last hour of trade on that day. While triple witching days may see some market volatility, not all trades occur in the last hour.  Short-term traders should adapt their strategies to these conditions, avoid trading, or reduce their position size if they notice their performance deteriorates during this time.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Nasdaq. "The Powerful Impact of 'Triple Witching'"

  2. U.S. Securities and Exchange Commission. "OneChicago, LLC’s Notice of Withdrawal of Registration as a National Securities Exchange Solely for the Purposes of Trading Security Futures Products."

  3. Federal Reserve Bank of St. Louis. "The Effect of the "Triple Witching Hour" on Stock Market Volatility." 

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