Quadruple witching day is coming. Will it be a wild Friday ahead?

Last "quadruple witching" day of 2021 in the U.S. market is coming ahead. It's expected to be the largest one in volume of this year, which has rattled many investors and traders.

The quadruple witching hour is the last hour of the trading session on the quadruple witching day when options and futures on indexes and equities expire, Friday.

What is quadruple witching?

Quadruple witching refers to four days when four different financial asset contracts expire in a calendar year.

The days are the third Friday of March, June, September and December. The assets on which the contracts expire on that day are stock options, single stock futures, stock index futures and stock index options. Options contracts also expire monthly. Futures contracts expire quarterly.

Why it matters

Because all four types of contracts expire on the same day, the quadruple witching day usually sees a heavier volume of trading, which will cause market chaos.

Quadruple witching day is coming. Will it be a wild Friday ahead?

Part of the reason for the increase in market transaction volume is the automatic offsetting transactions. Volume on quadruple witching days has increased roughly two-thirds of the time since 2005.

Put it simply, on the negative side, history suggests that returns haven’t improved significantly. Volatility may bring gains or huge losses.

The positive impact on the market that day is that arbitrage trading brings profit opportunities. Active trading, that is, an increase in trading volume, may cause the market to rise.

The $S&P 500 Index(.SPX.US)$ dropped 0.06%, 1.31%, and 0.91% on Mar 19, June 18, and Sep 17respectively according to historical data of other three quadruple witching days this year.

How to Invest during quadruple witching day? To learn more about stock options and how to hedge the position through options, you might like this course:

Snapshot of the benefits and risks of options trading: