The “triple witching hour” explained

The “witching hour” in the stock market is like a really busy intersection in a big city at rush hour. Just like how cars, buses, and bikes all converge at the same time and place, causing a lot of traffic and sometimes chaos, the “witching hour” is when several types of stock market contracts all end at the same time.

The “witching hour” in the stock market happens four times a year, on the third Friday of March, June, September, and December. It's the time when several types of stock market contracts expire all at once.

triple witching

The reason it's called “witching hour” is kind of interesting. It's a playful term that suggests a time of intense activity and almost magical or mysterious market behaviour, kind of like the witching hours in folklore when supernatural events are said to happen.

In the stock market, this period is marked by rapid and sometimes unpredictable price changes, much like the unpredictable nature of a witching hour in stories.

What is the triple witching hour?

Triple witching hour occurs on the third Friday of March, June, September, and December. It's the simultaneous expiration of three kinds of derivatives:

  • Stock index futures: Contracts to buy or sell a specific stock index at a predetermined price on a specific date.
  • Stock Index options: Similar to futures, but these give the holder the right, not the obligation, to buy or sell an index at a set price.
  • Stock options: Options that give the holder the right to buy or sell specific stocks.

What is the quadruple witching hour?

The quadruple witching hour is similar to the triple witching hour but includes a fourth element:

  • Single stock futures (SSFs): Futures contracts based on individual stocks, adding to the mix of expiring contracts.

How often does this phenomenon occur?

The witching hour occurs on the third Friday of March, June, September, and December.

On options and futures expiration days, futures and options markets close earlier than usual, so we should be aware of the schedule on expiration days.

Why does this witching hour phenomenon occur?

The “witching hour” phenomenon in the stock market occurs due to the simultaneous expiration of different types of derivatives contracts.

Derivative contracts like stock options, index futures, index options, and single stock futures have specific expiration dates. These dates are usually set as the third Friday of March, June, September, and December.

Traders holding these derivatives often have to make decisions to either close out their positions or roll them over to the next expiration date. This leads to a flurry of activities, including buying or selling the underlying stocks or indices, depending on their strategies and the market conditions.

This concentration of activities leads to increased trading volume and potential volatility in the markets. The large number of transactions and the rebalancing of positions can cause significant price movements.

Upcoming witching hours

Triple witching datesYear
March 15,2024
June 21,2024
Sept. 20,2024
Dec. 20,2024
March 21,2025
June 20,2025
Sept. 19,2025
Dec. 19,2025

Read more about stock markets

Summary

The term “witching hour” is used metaphorically to imply a period of intense activity and sometimes unpredictable market behaviour, akin to the witching hour in folklore known for mysterious and supernatural occurrences. The convergence of different derivative contracts expiring leads to a unique market environment that can be challenging and opportunistic for traders.

FAQs

How does the witching hour affect the stock market?

The witching hour often leads to increased trading volume and market volatility as traders adjust or close their derivative positions. This can result in significant price movements of stocks or indices.

Is the witching hour a good time for trading?

The witching hour can offer opportunities for experienced traders to capitalise on market movements. However, it also comes with increased risks due to higher volatility, so it's not recommended for inexperienced traders.

Do witching hours affect all stocks equally?

No, the impact of witching hours can vary across different stocks and sectors. Stocks with large open interest in derivatives might see more significant effects.

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