Witching Hour

Witching hour in finance refers to the final hour of trading on days when multiple derivative contracts, such as options and futures, expire simultaneously. These periods, particularly on “Triple Witching” or “Quadruple Witching” days, can cause increased volatility and trading volume as traders adjust their positions or close out expiring contracts. The witching hour typically occurs on the third Friday of March, June, September, and December, creating a surge of market activity.

Example

During the witching hour on a triple witching day, traders rush to settle or adjust positions in expiring stock options, index options, and index futures, leading to increased volatility in the final hour of trading.

Key points

• The last hour of trading on days when multiple derivatives expire simultaneously.

• Often occurs on “Triple Witching” or “Quadruple Witching” days, leading to heightened market volatility.

• Traders close out or adjust positions, causing sharp price movements and increased volume.

Quick Answers to Curious Questions

Why does the witching hour lead to increased market volatility?

It occurs when multiple derivative contracts expire simultaneously, forcing traders to adjust or close positions, which can cause large price swings and increased volume.

What is the difference between Triple Witching and Quadruple Witching?

Triple Witching involves the simultaneous expiration of stock options, index options, and index futures, while Quadruple Witching adds single-stock futures to the mix.