Posted in Finance, Accounting and Economics Terms, Total Reads: 280
Definition: Quadruple Witching
Quadruple witching hour represents the last hour of the trading session on third Friday of every quarter month i.e. third Friday of March, June, September and December. The term quadruple signifies that all the four future and options contact i.e. market index future, market index option, stock future and stock option expire at this trading hour. Due to this, the volume of trade happening on the exchange related to these contracts increases many times and this is termed as quadruple witching hour. Since on these days many investors in futures and options try to close their positions before the term of the contract expires.
Hence, there is a lot of activity that happens on these witching days resulting in a significant volatility in prices of stocks and derivatives. Future contract is a contract in which buyers and sellers enter into an agreement to buy or sell an asset at a future specified date and also at a predetermined price. In case of options, it is not the obligation of the buyer or the seller to exchange the underlying assets; it depends on their will to whether exercise or not exercise the option.
Similar to that of quadruple witching, there are triple witching and double witching hours as well. Quadruple, triple and double only denotes the number of contracts that are expiring during the witching hours. In triple witching the contracts that expire includes stock options, market index options and market index futures. However, double witching hours include any two of the above mentioned four futures and options contract.