What is Triple Witching? Triple Witching Days 2024

In the context of financial markets, "triple witching" refers to a specific event that occurs on the third Friday of certain months, typically March, June, September, and December. 

During triple witching events, three different types of financial derivatives contracts—stock options, stock index futures, and stock index options—all expire on the same day. This convergence of multiple expirations can lead to increased trading activity and volatility in the financial markets.

As a result of increased market volatility, triple witching events can sometimes create opportunities for vigilant investors and traders. But due to heightened volatility, triple witching events are also arguably riskier than other expirations. As such, market participants should be aware of triple witching to ensure they are prepared for possible high-magnitude moves, and manage their portfolios accordingly. 

During triple witching, three different types of financial derivatives contracts—stock options, stock index futures, and stock index options—all expire on the same day. This convergence of multiple expirations can lead to increased trading activity and volatility in the markets.

More details on triple witching are outlined below:

Stock Options: On triple witching, regular monthly stock options contracts that are listed on individual stocks or exchange-traded funds (ETFs) typically expire. Traders and investors who hold these options positions must decide whether to exercise them, roll them over, or let them expire. 

Stock Index Options: In addition to regular stock options, stock index options contracts, which are options based on broader market indices like the S&P 500, also typically expire on triple witching. That means investors and traders holding these positions must also decide whether to close or roll their positions on triple witching. 

Stock Index Futures: Stock index futures contracts, such as those based on popular indices like the S&P 500 or Nasdaq, also expire on triple witching. These futures contracts are often used for hedging and speculative purposes, which means many market participants close or roll these positions on (or before) triple witching. 

Triple witching typically occurs on the third Friday of the months of March, June, September, and December, as highlighted below:

Looking at an example, imagine the triple witching on September 20, 2024. On that day, three types of derivatives contracts will expire. These contracts include stock options, stock index futures, and stock index options.

First, stock options on individual stocks and ETFs with a September 20, 2024 expiration date come to the end of their contract life. Investors and traders holding these options must therefore determine whether to close these positions, let them expire, or roll them to a different contract month. 

Along those same lines, stock index futures contracts will also expire on September 20. That means investors and traders holding these futures contracts need to make choices about rolling them, closing them or taking physical delivery of the underlying assets. Simultaneously, stock index options contracts, which are tied to broader market indices, will also expire on September 20, requiring holders to decide on whether to close these positions, or roll them to a future expiration. 

Institutional investors and market makers also adjust their portfolios and hedges on triple witching, which may provide important insight into broader market sentiment. 

Due to the convergence of several expirations, and increased trading volume and volatility, triple witching can be a challenging environment to trade.

Investors and traders new to triple witching may therefore want to keep the following tips and considerations in mind. 

Stay Informed: First and foremost, make sure you are aware of the specific triple witching date and be aware of which contracts expire on that day.

Risk Management: Consider implementing strict risk management practices on triple witching days. For example, by using stop-loss orders to limit potential losses, or by sizing your trades smaller to account for volatile trading conditions. 

Options Strategies: If you have existing options positions, consider closing them out or rolling them to a different expiration period prior to triple witching. Be especially cautious about letting options expire in the money, as they can result in assignment. Discover the 10 most popular options trading strategies.

Futures and Index Trading: If you're involved in futures or index trading, be prepared to close out positions or roll them over to a future date, possibly before triple witching arrives. Pay special attention to the closing times of these contracts/markets. 

Observe Market Behavior: Watch how the market behaves as triple witching approaches and during the day itself. Follow trends and price patterns that may provide opportunities. 

Market Liquidity: Be aware that market liquidity can change rapidly on triple witching days. Ensure you can execute orders effectively, especially if you need to exit a position quickly.

Paper Trading: If you are new to triple witching, consider practicing your strategies in a simulated or paper trading environment (e.g. mock trading) to gain experience without the risk of capital losses. 

Plan Ahead: Develop a trading plan ahead of triple witching. Know your entry and exit points, and have contingency plans in place in the event the market moves against your positions.

Avoid Emotional Trading: Triple witching days can be stressful, and emotions can run high. Stick to your trading plan and avoid impulsive decisions. 

Monitor News: Keep an eye on financial news and announcements that may impact the markets on triple witching days, as external events can exacerbate volatility.

Much like any other trading day, triple witching offers the opportunity to make profits on a variety of different strategies. Some of the most common strategies utilized on triple witching are highlighted below.

1. Momentum Trading: Day traders look for stocks or indices experiencing strong upward or downward momentum on triple witching days. Sometimes they enter positions to ride the trend, aiming to capture short-term gains.

2. Scalping: Scalpers aim to profit from small price movements by executing a large number of trades throughout the day. Scalpers are usually active on triple witching due to the potential for high magnitude moves. 

3. Pairs Trading: Day traders simultaneously buy one asset and short sell a related asset when they believe a pair is mispriced. Due to elevated volatility, pairs opportunities may develop on triple witching expirations. 

4. Gap Trading: Investors and traders often focus on gaps between the closing price of the previous day and the opening price. On triple witching, these gaps may be more extreme, allowing for attractive opportunities.

5. Reversal Trading: Due to increased volatility, some securities may move to an extreme on the day of triple witching. That could push the security into overbought or oversold territory, which may set up the security for a reversal. As a result, some market participants closely monitor reversal opportunities on triple witching. 

6. News Trading: New developments can impact a security on any trading day, but on triple witching there’s the potential for higher magnitude moves. As a result, investors and traders may elect to follow the news more closely on triple witching to take advantage of potential opportunities. 

Triple Witching is a significant event in the financial markets that occurs on the third Friday of certain months, typically March, June, September, and December. During Triple Witching, three types of financial derivatives contracts—stock options, stock index futures, and stock index options—all reach their expiration on the same day. Traders and investors must therefore make decisions about their options and futures positions, which can lead to potential shifts (and opportunities) in the markets. 

As a result, triple witching may result in increased trading activity and heightened price volatility. This environment may be rich in opportunity.  However, due to the risks inherent in triple witching, it’s important for market participants to remain disciplined and adhere to a strict risk-management approach. Due to the convergence of these important expirations, triple witching may also offer insight into potential positioning, which may be valuable to vigilant investors/traders. 

All told, triple witching may offer attractive opportunities to trade/invest, but this event also comes with increased risk, which is why market participants should execute caution during triple witching - especially those that are new to the financial markets. 

Triple witching typically occurs on the third friday of the months of March, June, September, and December, as highlighted below: 

• March 2024: The third Friday is March 15.

• June 2024: The third Friday is June 21.

• September 2024: The third Friday is September 20. 

• December 2024: The third Friday is December 20.