Quadruple Witching
Candlefocus EditorQuadruple witching was created in the early 1990s as a way to allow investors to react quickly to market uncertainties and make educated investment decisions. With the ability to quickly adjust their portfolios on quadruple witching days, investors could mitigate the risk associated with sudden market changes, such as increases or decreases in the Dow Jones Industrial Average.
However, single stock futures stopped trading in 2020, so “quadruple witching” is no longer an accurate term; due to the lack of single stock futures, the event is now referred to as “triple witching.” Fortunately, while quad- or triple witching still increases trading volume, it does not have a large effect on short-term market volatility.
Typically, investors or traders will use quadruple witching and triple witching days to roll their contracts forward, which involves exchanging one expiring derivative for a new contract with a later expiration date. This practice helps reduce the amount of risk exposure since the new contract may have different values and conditions than the original one. Before such an event, investors often review the market conditions and conservatively adjust their derivatives contracts so that the most gains are made without losing money.
In conclusion, quad- or triple witching days are an important event for all investors and traders. The simultaneous expiration of various derivative contracts makes it easy for investors to react to sudden market changes and make educated decisions on their portfolios. Although single stock futures are no longer part of the event, triple witching days still maintain their importance by increasing trading volume and allowing investors to roll their contracts forward.