Quadruple Witching Guide

The Ultimate Guide To Quadruple Witching

Quadruple witching is a market day when single stock options, stock index options, single stock futures, and stock index futures all expire. Quadruple witching days typically see above-average trading volume, although this volume isn’t necessarily accompanied by above-average volatility.

In this guide, we’ll explain what quadruple witching is, when it happens, and why traders should pay attention to it.

What is Quadruple Witching?

Quadruple witching occurs when four types of derivatives expire on the same day: stock options, stock index options, stock futures, and stock index futures. On this day, profitable options contracts are automatically executed and futures contracts are transacted or rolled over to a new contract.

Quadruple witching days happen four times per year in March, June, September, and December. In 2022, the quadruple witching days are March 18, June 17, September 16, and December 16.

Quadruple Witching Calendar

Components of Quadruple Witching

There are 4 derivatives that expire on quadruple witching days:

Quadruple Witching Components

Single Stock Options

Single stock options give the owner the right, but not the obligation, to buy an underlying stock at a pre-determined price up until a preset expiration date. Options expire on the third Friday of every month. Traders must execute or sell their options on or before that date. Profitable (in-the-money) options are automatically executed at expiration.

Stock Index Options

Stock index options are similar to single stock options, except that they represent an entire stock index such as the S&P 500 instead of an individual stock.

Stock Futures

Stock futures are contracts that obligate the owner to buy or sell a specific stock at a predetermined price on a preset date in the future. When a futures contract expires, the holder is obligated to take ownership of the shares and the contract issuer is obligated to provide the shares. Stock futures contracts expire on the third Friday of every third month.

(Note: single stock futures were introduced in 2002. Prior to this, quadruple witching days were known as triple witching days, and the two terms are now used interchangeably.)

Stock Index Futures

Stock index futures are futures contracts that represent an entire stock index. Index futures are typically settled in cash rather than in shares.

Why is Quadruple Witching Significant?

Quadruple witching is significant because it results in higher-than-average trading volume across the stock market. On quadruple witching days, traders are typically selling or executing open options contracts, while profitable options contracts execute automatically. On the same day, all futures contracts must be settled and traders can open new futures contracts for the next three-month period.

This activity happens against the normal backdrop of trading activity, including trading on shares rather than derivatives. The result is that quadruple witching days are some of the biggest days of the year in terms of overall trading volume. 

Impacts of Quadruple Witching

Quadruple witching’s biggest impact on the market is an increase in trading volume. Typically, increased trading volume is a good thing for traders since it translates to increased liquidity and is often accompanied by volatility.

Quadruple Witching Volume

However, increased trading volume on quadruple witching days is typically not accompanied by higher volatility. This is in part because institutional investors aren’t changing their large long-term positions on these days. The derivatives involved in quadruple witching are often used for hedging and represent small holdings relative to the stock positions that many institutional investors maintain. Traders may still be able to take advantage of increased volume for trading on quadruple witching days, but these days don’t necessarily present more trading setups than normal.

Still, quadruple witching days can result in highly volatile moves, especially if a firm has a large options or futures position that is being closed out. Large positions are often unwound around opening or closing on quadruple witching days, and traders should be on the lookout for block trades that cause significant price movements.

Conclusion

Quadruple witching occurs four times each year on days when single stock options, stock index options, single stock futures, and stock index futures expire simultaneously. The market usually experiences higher than average trading volume on quadruple witching days, but not necessarily higher than average volatility. Still, traders should be on the lookout for volatile movements on these days that could present opportunities for trading.


The information contained herein is intended as informational only and should not be considered as a recommendation of any sort. Every trader has a different risk tolerance and you should consider your own tolerance and financial situation before engaging in day trading. Day trading can result in a total loss of capital. Short selling and margin trading can significantly increase your risk and even result in debt owed to your broker. Please review our day trading risk disclosuremargin disclosure, and trading fees for more information on the risks and fees associated with trading.

Related Content

How Do Market Makers Make Money?

How Do Market Makers Make Money?

If you've ever traded stocks, you've probably used a market maker. Market makers are the middlemen of the stock market, and in most cases, these are firms, individuals, and or large corporations that facilitate transactions. For example, if you wanted to buy shares...

How Long Can You Hold a Short Position?

How Long Can You Hold a Short Position?

Investors can hold onto long positions for years or even decades without running into problems. But most short positions are much shorter in duration – a few months to a few years at most. There are several practical limitations that limit how much time traders can...

How to Interpret Level 2 Data

How to Interpret Level 2 Data

Level 2 data is important for traders because it shows the full range of open orders for a stock, not just the current best bid and ask price. Using Level 2 data, you can identify potential trades before they become apparent on technical charts or get additional...

Doji Candlestick Patterns

Doji Candlestick Patterns

A Doji is a type of candlestick pattern that often indicates a coming price reversal. This pattern consists of a single candlestick with a nearly identical open and close. In this guide, we’ll explain what the doji candlestick is and how traders can interpret it. How...

How Does Inflation Affect the Stock Market?

How Does Inflation Affect the Stock Market?

Inflation can have a big impact on the stock market, leaving unprepared investors in for a bumpy ride. In this article, we’ll explain why inflation impacts the stock market and take a closer look at how the stock market has reacted to inflation in the past. What is...

Ascending Triangle Chart Patterns

Ascending Triangle Chart Patterns

An ascending triangle chart pattern is a bullish technical pattern that typically signals the continuation of an uptrend. They can signal a coming bullish breakout above an area of resistance after it has been tested several times. In this guide, we’ll explain what...