Beware of Today’s Quadruple Witching
Today is the quarterly event known as quadruple witching in which 1) S&P 500 futures, 2) options on those futures, 3) options on individual equities and 4) single stock futures all expire. In the past, these ‘witching’ days have been characterized by above-average trading volume and increased volatility. But in the current environment, those are relative terms as both have had record levels for the past three weeks.
Still, expect some wild gyrations, especially as we head into the close today which could carry over into Monday’s opening as positions get squared away, hedges established and positions rebalanced. But don’t worry, it’s not as scary as it sounds. While there will likely be higher than normal trading volume, the “witching” days tend to be less volatile than when the term was first coined some 30 years ago, and back then it was merely a ‘triple’ witch.
Some of the reasons for the lower volatility include a staggering of expiration periods, a plethora of new products — such as ETFs — and the addition of weekly, monthly and quarterly option expirations, which have diffused the impact of the quarterly contract rollovers.
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