Quadruple witching refers to the day in which the contracts on four different types of financial assets expire. It happens four days during a calendar year, on the third Friday of March, June, September and December. The last quadruple witching day of 2021 will happen on 17 Dec 21. The financial assets on which the contracts expire on this day are stock options, single stock futures, stock index futures and stock index options.
As all four types of contracts expire on the same day, there is a heavier volume of trading on quadruple witching day. Market volume is increased partly due to offsetting trades that are made automatically, such as the CALL and PUT options that expire in the money.
While the quadruple witching day may result in increased volume and arbitrage opportunities, it does not necessarily translate to increased volatility in the markets.
Is Quadruple Witching Friday Bullish or Bearish?
The event itself is not bullish or bearish, because, on this day, both bulls and bears will close out positions due to the various contracts expirations.
Traders will also attempt to close out their positions to avoid getting their contracts being exercised if they do not wish for that particular outcome. For example, a CALL seller may wish to buy back his contract to avoid losing 100 shares, or a PUT seller may wish to close his contract and avoid buying 100 shares when the contract expires.
And with these expirations all happening at once, more positions are being closed out, which leads to a high volume exchanged in the indices. The increase in trading volume on witching days might lead to above-average volatility in some cases but this is not a guarantee.