What is Quadruple Witching? When is Quadruple Witching? and what does it mean?
Has nothing to do with 4 witches or Halloween –correction prior to 2002 Triple Witching did refer to the 3 witches in Shakespeare’s “Macbeth”. Could also be that most option/futures traders look a bit like witches but that’s as far the definition goes..lol But what is it exactly and why should you be aware of those dates as a trader? Also when did that 4th witch join the Friday party?
When is Quadruple Witching ?
Today Friday March 18, 2011 is Quadruple Witching and it occurs the day when Contracts for Stock options, Single Stock Futures, stock index options and stock index futures all expire: (There are 4 different expirations that is why its called Quadruple)
If you have been in the market for a while you will have heard the term Triple Witching Friday which was used prior to 2002 before single stock futures contracts were added ( single stock futures can be considered our 4th witch and that’s why the term Quadruple is used representing the 4 different expirations)
Is Quadruple Witching every month ? the answer is NO !
It happens on the third (3rd) Friday of the following months ( March, June, September and December) –
How or Why does Quadruple Witching Affect the Stock Markets or Trading on those Fridays ?
Quadruple Witching is also known as Quad Witching and can have some volatility on the markets on that Friday since money is being moved around and its one of the most volatile and heavy traded sessions. Some swing and longer term traders don’t like to trade on days like today but some scalpers and daytraders love the volatility a day like Triple/Quadruple Witching provides. Traders are unwinding options & futures and either rebuying or selling their positions so that’s why we see a bit more volatility.
What does it mean when I hear Pinning a Stock ?
Pinning a stock means the stock closes at or near a strike price where the majority of the option activity is. For example: today (Fri. March 18, 2011 ) what stocks were pinned at key expiry levels today?
1) AAPL pinned near $330 ( closed @ $330.67 ) most of the calls/puts with a March expiry were at $330
2) CRM pinned @ 120 ( closed @ $120.01)
3) others : PCLN $450 ( closed $449.53) , GOOG $560 ( 561.06 ) HGSi 27 ( $27.01) NFLX $210 ( 209.40 ) , & AKAM TSLA YHOO RIMM were also close but if you look you can find many more
You can see above how many were so close to the key prices.
The 4 stock/index options & futures expirations (4 witches) in more detail below :
What are stock options ?
a stock options is a contract betwen a buyer and seller that gives the buyer of the option the right , but not the obligation , to buy or sell a specific asset on or before expiration at agreed price ( Strike Price) So for example March $330 calls for $AAPL or March $340 puts for Apple would fall into this category. So keep in mind that some option traders take on the stock so causes buys or sells that wold normally not be there on a normal day. That’s what causes volatility or sometimes you may get a term called pinning the stock –” Looks like they may pin AAPL stock at $330 today “
What are single stock futures or SSF’s ? (this is the 4th witch that joined the other 3 in 2002 )
Single stock futures are futures markets (they trade like futures) but are based on an individual stock They are available monthly or quarterly and are worth 100 shares of the individual stock. Advantages of these are lower commissions, no daytrading restrictions and lower margin. The disadvantages are that they are not as heavily traded and relatively new ( been trading in the US only since 2002)
What are stock index options?
These are options tied to the broad indeces or indexes like the S&P 500 index or the Russell 2000 Index or could be tied to a particular industry sector like : semi-conductor or health industry
What are stock index futures ?
Stock Index futures are the futures markets but based on a stock index like the FSTE 100 (footsie – 100 of the most capatalized UK stocks) or the DOW JONES (30 of the top blue-chip stocks on the NYSE) They can also be for the European indexes (DAX-Deutcshe Boerse , CAC40-Euronext Paris, and Asian indexes (HSI- Hang Seng -Hong Kong Exchanges , SPi – Sydney Futures Exchange)
Other US index Futures you may have heard of are ES or $ES_F ( The Eminis S & P 500 index future ( CME- Chicago Mercantile Exchange) or TF or $TF_F ( Russell 2000 index futures)
Hope you found this helpful and have a great weekend,
What is Quadruple witching? What is Triple Witching? When is Quadruple Witching? When is Triple Witching? hope that answered your questions and didn’t confuse you too much. You may have to read it over a few times.