What is ‘quadruple witching’?
Quadruple witching is upon us Friday.
The spooky-sounding term occurs on the third Friday of the month of every quarter, in March, June, September, and December, and refers to the simultaneous expiration of single-stock options and futures and index options and futures.
The four-pronged expiration for options, which grant investors the right but not the obligation to buy an underlying asset at a given price and time, and futures has instilled a modicum of trepidation investors but has mostly been a benign event.
This time the event comes as stocks have been jumping toward records, with the S&P 500 SPX, -0.13% ESM19, -0.14% ESU19, -0.40% notching its first all-time high since April 30 on Thursday, and the Dow Jones Industrial Average DJIA, -0.13% YMM19, -0.09% YMU19, -0.37% trading within 75 points of its Oct. 3 record. The Nasdaq Composite Index COMP, -0.24% isn’t far wasn’t far from its May 3 all-time peak despite registering a correction, defined as a drop of at least 10% from a recent peak, fewer than three weeks ago.
Equity investors have been heartened by a Federal Reserve, which on Wednesday indicated a willingness to dial back benchmark borrowing costs if signs of stress in the domestic economy continue to crop up amid China-U. S. tariff tensions.
S&P 500 returns for “quad witch,” in the parlance of Wall Street floor traders, over the past three decades or so since 1990, is about 0.6% in absolute terms, compared with an average absolute return of 0.7% for every other Friday over the same period, including quad witchings.
JJ Kinahan, chief market strategist with TD Ameritrade, said so-called quad witching might result in “more market volatility and choppy trading toward the latter part of the week,” in an email.
According to MarketWatch’s Tomi Kilgore, writing for The Wall Street Journal, the real action on quad witch is the volume in the final hour of trading, but volumes have been relatively mundane recently and Wall Street’s so-called fear gauge, the Cboe Volatility Index VIX, +4.41% is hanging below 15, under its historic average of around 19.5.
Traders have said volume typically spikes around 3:30 p.m. Eastern Time on quadruple-witching days, but it is also worth noting that few investors trade single-stock futures or options on index futures because options contracts on single stocks are more widely used on Wall Street.