by Jared Levy on June 18, 2010
Don’t worry, the wicked witches from each nautical direction aren’t going to come swooping down on their broomstick, although it may feel like that now. Quadruple witching happens on the third Friday at the end of each quarter – March, June, September, and December. Most of us are familiar with regular equity options expiration, which occurs on the third Friday of every month. Quadruple witching is simply the simultaneous expiration of four different financial vehicles:
1. Equity options
2. Stock index futures
3. Stock index options
4. Single stock futures (note: not many of these trade)
I have written on this topic in the past and I thought it was necessary to address the quad-witching fear out in the blogosphere. Going through some financial blogs and even mainstream articles out there, it seems folks are blaming expiration for a major potential move in the markets.
We have been trained by the media to use the words “volatile” and “choppy” when describing options expiration (and especially triple and quadruple witching). Bloggers and people who know little about what is actually happening tend to exacerbate this misconception.
I agree that there was a time where quadruple witching and even regular options expiration was a stressful and sometimes more volatile event. Back in the early days of options trading, expiration may have played a larger role as less liquidity (lower stock and options volume and fewer market participants), embryonic technology, and the lack of communication caused abnormal movements in certain stocks and indexes.