Quadruple Witching Days occur four times every year and are thought to have the potential of causing higher than normal volatility. Of course, these days “higher than normal volatility” takes on a special meaning. Mark Wolfinger pointed out earlier on his blog that the market (US market) had 22 days where there was a 5% swing in price during the two months of October and November alone. To put this into perspective, this only happened 27 times between 1950 and 2000, a span of 50 years. Mark sourced the information in turn from a blog on Time Magazine’s site.
But I digress. A quadruple witching day is when you have a number of exchange traded derivatives expiring all at the same time. In this case we are talking about:
- Index Futures
- Index Options
- Options on individual Stocks
- Futures on individual Stocks
Each set has their own schedule of expiry dates, and it so happens that all four have expiry dates on the following four dates of every year – the third Friday of the following months:
- March, June, September and December
So this past Friday was a Quadruple Witching Day, but could anyone tell? Normally, the higher experienced volatility would be reflective of positions being closed out for futures, and hedges being extended for those who wish to keep hedging, and all the other things that happen with derivatives trading.