Quadruple Witching

When stock index futures, stock index options, stock options, and single stock futures expire simultaneously

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Written by CFI Team

What is Quadruple Witching?

Quadruple witching refers to a date where stock index futures, stock index options, stock options, and single stock futures expire simultaneously.

The final trading day for stock options is generally the third Friday of every month. The final trading day for index futures, stock index options, and single stock futures is generally the third Friday of each quarter. As such, there are only four dates in which stock options, stock index options, index futures, and single stock futures expire simultaneously (quadruple witching dates):

Third Friday of March
Third Friday of June
Third Friday of September
Third Friday of December

The first quadruple witching date was the third Friday of December 2002, as single stock futures commenced trading on November 8, 2002.

Summary

Stock index futures, stock options, stock index options, and single stock futures expire simultaneously on a quadruple witching date.
Quadruple witching dates are important to investors, as such dates are usually the most heavily traded days of the year.
On a quadruple witching day, holders of derivatives that expire on that date close or roll over their contracts.

Understanding Quadruple Witching

Quadruple witching dates are important to investors, as such dates are usually the most heavily traded days of the year, attributable to the exercise of futures and options before expiry. As a result, there tends to be greater market volatility on quadruple witching days.

Quadruple witching days do not see significant momentum. According to Dow Jones Market Data, the average daily gain of the S&P 500 index is 0.04% since the first quadruple witching in 2002.

Derivatives Involved in Quadruple Witching

Derivatives are financial contracts primarily used to speculate on the directional movement of an underlying asset or to mitigate risk (hedge). Below, we discuss derivatives that expire on a quadruple witching date:

Stock index futures, also known as equity index futures or index futures, are futures contracts based on a market index (such as the DJIA, S&P 500, NASDAQ, DAX, etc.). A futures contract is an agreement to buy or sell the underlying asset (in this case, a financial index) at a specific price on a specific date.
Stock index options are options contracts based on a market index. An options contract gives the buyer the right (not the obligation) to buy or sell the underlying asset (in this case, a financial index) at a specified price at any date before the expiration date (in the case of an American-style option) or at the expiration date (in the case of a European-style option).
Single stock futures (“SSF”) are futures contracts based on a single stock (such as Facebook, Amazon, Tesla, Microsoft, etc.) and are an agreement to buy or sell a single stock at a specific price on a specific date. SSF only began trading in the United States in November 2002 after then-President Bill Clinton signed the Commodity Futures Modernization Act of 2000.
Stock options are options contracts based on a stock. A stock option contract gives the buyer the right, but not the obligation, to buy or sell a stock at a specified price at any date before the expiration date (American-style option) or at the expiration date (European-style option).

What Happens to Derivatives on a Quadruple Witching Date?

On a quadruple witching day, holders of derivatives that expire on that date close or roll over their contracts. Rolling over a contract involves closing the existing contract and initiating a similar contract but with a later expiry date.