How to Trade Triple Witching

Triple witching might sound scary, but fear not: Below, discover how to trade triple witching days with options.

Justin Nugent

This article was last updated on 01/23/2023.

Triple witching, also known as “quadruple witching,” is a phenomenon that occurs on the third Friday of every March, June, September, and December. On these days, the contracts for stock index futures, stock index options, and stock options all expire at the same time. This event can lead to increased volatility and trading volume in the stock market.

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What About “Quadruple Witching”?

Simple answer: Quadruple witching doesn’t exist anymore, and it hasn’t since 2020. Quadruple witching refers to the simultaneous expiration of stock index futures, stock index options, stock options, and single stock futures derivatives contracts four times a year. However, as of 2020, single stock futures no longer trade in the U.S. — meaning quadruple witching can no longer take place — only triple witching.

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What Happens on Triple Witching Day?

In supernatural folklore, the word “witching” comes from the phrase “witching hour,” referring to an hour after midnight associated with supernatural events. In colloquial use, the phrase witching hour has also been used to describe the phenomenon of babies crying during the hour before their bedtime. 

In the stock market, the phrase “witching hour” has also been used to refer to the last hour of the trading day — which sometimes experiences above average volatility. The triple witching takes this above average volatility to new heights. 

As we stated above, the term “triple witching” comes from the fact that three different types of securities contracts all expire at the same time. Stock index futures are contracts that allow investors to buy or sell a specific stock index, such as the S&P 500, at a future date at a predetermined price. Stock index options are similar, but they give the holder the right, but not the obligation, to buy or sell a stock index at a specific price. Stock options, on the other hand, give the holder the right to buy or sell a specific stock at a specific price.

When these contracts expire, it can lead to increased volatility in the stock market as traders and investors adjust their positions. This is because many traders and investors who hold these contracts will need to either buy or sell the underlying securities to close out their positions. This increased buying and selling activity can lead to fluctuations in stock prices, which can create opportunities for traders to profit.

However, increased volatility can also create risks for traders and investors. For example, if a trader is holding a contract that expires in the money, they will need to buy or sell the underlying securities at the prevailing market price, which may be much higher or lower than the price they paid for the contract. This can lead to significant losses if the trader is not able to quickly adjust their position.

In addition to increased volatility, triple witching can also lead to increased trading volume. As traders and investors adjust their positions, it can lead to higher trading volume on the stock exchanges. This can make it more difficult for traders and investors to execute trades at the prices they want, which can also lead to increased volatility.

How to Trade Triple Witching Days with Options

Overall, triple witching is an important event for traders and investors to be aware of, as it can lead to increased volatility and trading volume in the stock market. While it can create opportunities for profit, it can also create significant risks. Traders and investors should be prepared to adjust their positions quickly if they are holding contracts that expire during triple witching.

Realistically, there’s no “hard and fast” rule for how to trade the triple witching — but there are a few things traders can do to help push the odds in their favor.

  1. Use long options. Triple witching days are highly volatile — where there is volatility, there are long options strategies that will benefit. Long options strategies are essentially any strategy with a positive delta — any strategy with a “debit” rather than a credit. Long calls, long puts, long debit spreads, long diagonal spreads, straddles, strangles — those are all long strategies. In some cases, if IV is rapidly expanding, a stock movement is not even required in order for the option price to move in your favor.
  2. Use short-duration options. The great thing about options is that they allow you to risk less capital if you’re willing to sacrifice a little time. That means, in the event of a single-day event like triple witching, you can pay very little relative to the price of a stock in order to gain a high amount of leverage — at a defined risk (meaning you can’t lose more than the total price of your option).
  3. Use short timeframes on your indicators. Using indicators and technical analysis is particularly important if you’re looking to ride the choppy waves of triple witching days. Importantly, short-duration options pair exceedingly well with short timeframe indicators. All that means is that if you’re looking to scalp an option over the course of a few minutes, you should use the 1-minute candles — not the 30-minute candles. Use the RSI from the daily chart, not the one from the 3-month chart.

The Simplest Way to Trade Triple Witching is With Professional Guidance

Triple witching days are the “deep end” of the trading pool — but that doesn’t mean you should be afraid to trade. It means you should go in armed with the guidance of trading professionals. That’s exactly what Market Rebellion offers.

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While January 20th wasn’t a “triple witching” day, it was a big options expiration day, with plenty of volatility afoot — still, we weren’t afraid to get their hands dirty with 0DTE option trades. Our professional traders and licensed CMT’s help Rebels navigate that volatility every day. Discover what trades our Rebels are making today.

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