Traders know that there are certain days in which market activity spikes, and quadruple witching dates are a good example in this case. Every year, there are four Fridays in which traders and investors need to be extra careful, as these dates can bring about increased volatility and potential price swings. What is quad witching, exactly? Let us tell you more about the quadruple witching dates in 2024 and 2025 and how you could choose to move on the market on these occasions.
Key takeaways
- Quadruple witching dates used to be those days in which the expiration of stock index futures, stock index options, stock options, and single-stock futures happened simultaneously.
- Since 2022, single-stock futures have been delisted, so a quadruple witching date is actually a triple witching date.
- The quadruple witching dates in 2024 are March 15, June 21, September 20, and December 20. Going into 2025, the quadruple witching dates will be March 21, June 20, September 19, and December 19.
What Is Quad Witching? (and How Does It Work?)
What is quad witching? Quadruple witching refers to the simultaneous expiration of four types of derivative instruments: stock index futures, stock index options, stock options, and single-stock futures. However, since single-stock futures were delisted in 2020, the term now encompasses only the first three, effectively making quadruple and triple witching synonymous. Therefore, the quadruple witching dates in 2024 only feature three asset classes expiration dates.
Here is what you need to watch out for during a quad witching day:
Historical Context
Quadruple witching dates back several decades and originally included all four derivatives mentioned above. The phenomenon rose in prominence as these financial instruments became widely used for hedging and speculative purposes. The delisting of single-stock futures in 2020 simplified the concept but didn’t lessen its impact on market activities.
When It Happens
Quadruple witching occurs on the third Friday of March, June, September, and December each year. In 2024, the key dates are March 15, June 21, September 20, and December 20. For 2025, mark your calendars for March 21, June 20, September 19, and December 19. Knowing these dates is essential for traders as they prepare for the heightened activity.
Mechanism and Market Impact
The simultaneous expiration of these derivatives affects trading volume and market activity significantly. During quadruple witching, traders rush to close out or roll over expiring positions, leading to a spike in trading volumes. This surge is often most noticeable in the final hour of trading, generally named the “witching hour.”
Key Effects:
- Increased Trading Volume: Imagine you are looking at quad witching dates in 2024. As different types of contracts expire at the same time, market participants execute a large number of trades to adjust their portfolios. This increased turnover is seen across the futures and options markets.
- Portfolio Adjustments: Portfolio managers often take this opportunity to rebalance their holdings. They might buy or sell underlying assets to reflect changes in the indices they track, contributing to the flurry of activity.
- Contract Rolling: Traders rollover expiring contracts to the next expiration date, increasing market liquidity but also adding to temporary price distortions.
The Witching Hour
The witching hour, the last hour of trading on quadruple witching days, is particularly notorious for its volatility. During this time for quadruple witching dates in 2024, market makers and traders hastily close out positions, adjust hedges, and manage risks associated with expiring contracts. This can cause sharp, unpredictable price movements, offering both opportunities and risks for traders.
Quadruple Witching Example
An example will certainly clarify several key aspects of how quadruple witching impacts trading. Imagine it’s December 20, one of the quadruple witching dates in 2024.
Setting the Scene: Hypothetical Example
Let’s say you are an active trader with a diversified portfolio that includes stock options, index futures, and index options. You are well aware that quadruple witching days can lead to significant market fluctuations. As December 20 approaches, you start planning your strategy to mitigate potential risks and capitalize on opportunities, as you likely did in the previous quadruple witching dates in 2024.
Portfolio Adjustments
Preparations Before Quadruple Witching
- Rolling Positions: You decide to roll over some of your expiring contracts to avoid last-minute rushes. In this case, by “rolling,” we mean closing out the current positions and opening new ones with later expiration dates.
- Adjusting Holdings: You also choose to rebalance your portfolio by increasing or decreasing your exposure to certain assets based on current market conditions and economic indicators. For instance, let’s say you don’t like how exposed you are to the energy sector, so you decide to sell some oil futures contracts.
- Hedging Strategies: To protect against potential volatility, you place stop-loss orders and consider hedging strategies like buying put options to safeguard against downside risk.
Day of Quadruple Witching
Morning Activities (assuming you live in the US)
- Early Trading: The market opens with noticeable upticks in trading volume as traders like you make initial adjustments. This early activity sets the tone for the rest of the day.
- Portfolio Rebalancing: You take advantage of the morning calm to rebalance your holdings based on the latest market data, buying or selling stocks and options accordingly.
Midday Adjustments (assuming you live in the US)
- Monitoring Market Movements: As the day progresses, you keep a close eye on market trends and news that could impact your positions. You remain vigilant, ready to make quick adjustments on quad witching day, if necessary.
- Strategic Trades: By noon (like you did in the previous quad witching dates in 2024), you have executed several strategic trades to align your portfolio with market expectations, ensuring you are prepared for any sudden moves.
The Witching Hour (Final Hour of Trading)
- Increased Activity: As the witching hour begins, trading volumes surge dramatically. Market makers and traders rush to close out expiring positions and adjust hedges.
- Volatility Spikes: You notice increased price swings and heightened volatility. Here, you stick to his plan, avoid panic trading, and carefully manage your positions.
- Final Adjustments: In the last minutes of trading, you make final adjustments to ensure your portfolio is optimized for the close.
Impact on Different Market Participants
- Traders: Like you, many traders use quadruple witching to adjust their portfolios. They may close or rollover contracts, leading to increased trading volume and potential price distortions.
- Market Makers: These participants, who often sell expiring contracts, are busy closing matched hedge positions, adding to the overall trading activity.
- Portfolio Managers: Institutional investors and fund managers take this opportunity to rebalance their portfolios in line with index changes and market conditions. This is easy to spot: if you use the volume-adjusted price (VAP) indicator, you will likely see large VAP spikes at the close, as you may have already observed during past quadruple witching dates in 2024.
Real-life Examples
Historically, quadruple witching days have seen notable market movements, as you can see in the table below:
For instance, on June 19, 2020, the S&P 500 experienced a significant increase in trading volume, although the overall market remained relatively stable.
What could you have done in these cases? For starters, you could have rolled out the options expiring on June 19, 2020. You may have also used this day to “clean up” your portfolios and move money into fixed-income assets. Had you had any idea about the potential stability of the S&P500, a quick iron condor with options expiring that day would have been an ideal trade (but very risky due to how close you were to the expiration.
Conversely, on September 17, 2021, the Dow Jones Industrial Average faced a more noticeable dip during the witching hour, illustrating the varying impacts of these events. So, as you see, there’s no rule on where the market could go during quadruple witching. One thing is certain: trading volume will increase, and volatility may (or may not) spike on quad witching day.
Is this going to happen during quadruple witching dates in 2024? That’s hard to tell, but if you expect increased volumes and watch out for volatility increases or decreases, you may quickly spot some nice opportunities.
Quadruple Witching Trading Strategies
You can trade quadruple witching dates in 2024-2025. Here’s how you can approach it. We’re not saying that it is an easy thing to do, but it certainly is possible to make good profits from these events, as we summarized in the table below:
Rolling Contracts
- Rolling Forward: If your options are profitable, consider rolling them forward to the next expiration date. This helps capture more premium while keeping your market exposure.
- Rolling Down and Out: For losing positions, roll down to a lower strike price and out to a later expiration on quad witching day. This can help recover some losses while still maintaining a market position.
Delta-Neutral Strategies
Set up delta-neutral positions like iron condors or butterflies that you may find on our options screener to benefit from expected low volatility during the quadruple witching dates in 2024. Adjust these positions dynamically as expiration approaches to manage risk and capitalize on market conditions.
Trading VIX Options
You can trade quad witching dates in 2024-2025 with options on the VIX to hedge against or capitalize on expected volatility spikes during quadruple witching. This strategy can be especially useful given the heightened activity during these times.
Arbitrage Opportunities
This is, perhaps, the hardest strategy of all that you could choose to perform on quadruple witching dates in 2024. Theoretically speaking, you can take advantage of price discrepancies between near-term and long-term options. Buy the near-term options and sell the long-term ones if you believe volatility will stabilize, profiting from the spread difference. However, consider that derivative markets are rarely not efficient enough to allow for this strategy.
Risk Management
- Reduce Trade Size: Given the increased volatility that you may expect during quadruple witching dates in 2024-2025, consider reducing the size of your trades to limit risk.
- Use Stop-Loss Orders: Deploy stop-loss orders to protect against significant adverse price movements.
- Utilize Limit Orders: These can help ensure that trades are executed at your desired prices, providing more control in a volatile market.
- Clear Entry and Exit Strategies: Having a well-defined plan for entering and exiting trades during quad witching dates in 2024 can help you make sense of the chaos of a quad witching day effectively.
Considerations Before Trading on Quadruple Witching Day
- Understand Volatility: Be prepared for rapid price movements during quadruple witching dates in 2024-2025 and plan accordingly.
- Monitor Market News: Stay updated with economic indicators and market data that could impact your trades on quad witching day.
- Be Prepared: Increased vigilance and readiness to adapt your strategies on-the-fly are crucial to successfully navigating quadruple witching days.
