Halloween brings out ghouls, goblins and ghosts, but four times a year, the U.S. markets bring out the witches – or witching. Quad witching to be exact.
Quadruple or “Quad” (and triple and double) witching is aptly named for the volatility and havoc inherent in four derivative products expiring on the same day, which occurs four times a year. As the end of each quarter approaches, traders can anticipate higher trading volume and volatility when four classes of contracts simultaneously expire.
The expiration of options contracts, index options, single stock futures and future indexes ushers in heavy trading as contracts that are profitable settle automatically with offsetting trades.
The third Friday of March, June, September and December are designated quad witching days each year. Last month, we witnessed just how quad witching influences market fluctuations as approximately 750 billion single stock options matured at one time. While this phenomenon doesn’t always lead to serious volatility, it certainly impacts the markets.
- Depending on the market trend, quad witching can exacerbate either bullish or bearish sentiment.
- Investors should not attempt to time the market during quad witching periods, as there can be significant intra-day volatility associated with the expirations. As the father of value investing, Benjamin Graham, once noted, “In the short run, the market is a voting machine; but in the long run, it is a weighing machine.”
The final quad witching event of 2021 will occur on Dec. 17, 2021. Watch for market movement starting typically a week prior, where historically the fluctuations are fairly positive. As for the witching day itself, we often see the increased volatility is paired with some market declines.
Alan McKnight is the Chief Investment Officer for Regions Asset Management, part of Regions Bank Wealth Management where he is responsible for developing consistent and comprehensive asset management strategies to meet the needs of individuals, families and institutional clients.
The commentary expressed are statements of the individual’s opinion, are intended only for informational purposes, and are not formal or binding opinions of Regions Bank, its parent company Regions Financial Corporation, or its subsidiaries. This content is solely for information and educational purposes, and nothing contained in this presentation constitutes an offer or solicitation to purchase any security, the recommendation of any particular security or strategy or a complete analysis of any security, company or industry or constitutes tax, accounting or legal advice. Information is based on sources believed to be reliable but is not guaranteed as to accuracy. Commentary and opinions provided reflect the judgment of the individual as of the date of the statement and are subject to change without notice. Some statements may contain forward-looking statements based upon the reasonable expectations, estimates, projections and assumptions of the individual, but forward-looking statements are not guarantees of future performance and involve risks and uncertainties, which are difficult to predict. Investment ideas and strategies presented may not be suitable for all investors. No responsibility or liability is assumed for any loss that may directly or indirectly result from use of information, commentary or opinions.
Investment ideas and strategies presented may not be suitable for all investors. Diversification strategies do not ensure a profit and do not protect against losses in declining markets. Past performance is no guarantee of future results.