What Is Double Witching?
Double witching refers to the expiration on the an identical day of possible choices contracts for single stocks and for equity indexes.
Double witching takes place on the third Friday of each month excluding for March, June, September, and December. All the way through those months, index futures moreover expire on the third Friday, turning the example proper right into a triple witching.
Key Takeaways
- Double witching occurs when two different categories of possible choices contracts—for stocks and stock indexes—expire on the an identical day.
- It occurs each third Friday of each month excluding for March, June, September, and December, which see triple witching on account of futures contracts moreover expire at the ones days.
- Double witching days can lead to greater purchasing and promoting amount—at the market open on account of index possible choices expirations and inside the final hour of shopping for and promoting ahead of the expiration of stock possible choices.
How Double Witching Works
Double witching is notable because the per 30 days possible choices expirations increase stock market purchasing and promoting amount as market makers and other possible choices sellers liquidate stock positions hedging the expiring contracts.
Like triple-witching Fridays, double-witching ones boost purchasing and promoting amount at the market open, even if the bump is not just about as massive.
Stock market purchasing and promoting amount will build up inside the morning on third Fridays on account of many per 30 days index selection derivatives settle that morning (along with index futures on triple-witching Fridays), prompting the promoting of hedges inside the underlying stocks.
The purchasing and promoting amount surge connected to derivatives settled that morning is followed via any other inside the final hour of market purchasing and promoting on third Fridays because of the expiration at the end of the day of per 30 days stock possible choices (along with weekly ones). The stock selection expirations moreover urged the liquidation of hedges inside the underlying stocks along with transactions tied to the exercise of in-the-money possible choices.
Most index possible choices and futures are cash-settled inside the morning, spurring stock market purchasing and promoting volumes at the open, while stock selection expirations at day’s end boost purchasing and promoting inside the final hour and at the market close.
While a large number of the purchasing and promoting that takes place everywhere double witching days is said to the squaring of positions, the surge of process can also energy value inefficiencies, which pulls momentary arbitrageurs.
Double Witching vs. Triple Witching
Double witching is somewhat like triple witching, with one notable difference. Triple witching occurs when stock possible choices, stock index possible choices contracts and stock index futures all expire on the an identical day. Triple witching only takes place 4 circumstances once a year—on the third Friday in March, June, September, and December. Rebalancing via some indexes on triple witching days provides any other spur to shopping for and promoting.
Double witching occurs on the third Friday of the 8 months without index futures expirations. On double witching days, the expiring contracts are possible choices on stocks and stock indices.
