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| Quadruple
Witching |
What It Is:
Quadruple witching refers to when market index futures, market index options,
stock options, and stock futures all expire on the same day.
Quadruple witching is similar to triple witching, which only includes the
expirations of index futures, index options, and stock options.
How It Works/Example:
Although index futures and options generally share simultaneous expirations on
the third Friday of every month, quadruple witching days only occur on the third
Friday of every March, June, September, and December. The last hour of these
trading days, from 3:00 to 4:00 p.m. EST, is referred to as the quadruple
witching hour.
On quadruple witching days, and especially during quadruple witching hours, many
investors attempt to unwind their positions in their futures and options
contracts before the contracts expire. This activity frequently includes
repurchasing contracts and closing out other positions meant to hedge against
these contracts.
Why It Matters:
Quadruple witching days are usually accompanied by considerable volatility in
stock and derivative prices, as well as increased trading volume. As a result,
investors can anticipate and plan for the potential effects of these relatively
turbulent trading days.
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