Triple witching is an event that happens four times a year on the third Friday of every March, June, September, and December.
What Happens
Three financial contracts expire at the same time: stock options, stock index futures, and stock index options.
As you can imagine, this brings a lot of volume to the market, which CAN, but not necessarily, introduce volatility. Triple witching also happens ahead of quarterly endings, which can be times which traders and investors rebalance portfolios and move large money between positions.
Why It Matters for the Stock Market
- Large institutions and money managers use this period to roll over their expiring futures and option contracts into the next calendar quarter before the deadline or expiration.
- This one is KEY…and it’s LIQUIDITY. The days leading up to triple witching can introduce a lot of volume on the market, which brings volatility, and it brings liquidity. Liquidity on the market is how “easily” you can buy and sell a stock. Large institutional money managers move millions worth of shares in one pass, which means they need a lot of buyers and sellers to exchange those shares with…when there’s high volatility, other traders, including retail traders, are actively buying or panic selling, which brings the exact volatility institutions need.
On the actual week of a triple witching event, it helps to track the option chain’s implied volatility and compare it to the historic volatility (we compare it over 20 sessions). If volatility is elevated, it can act as a confirmation signal for a larger than expected move.