As you have seen, in the articles for your investment training we deal with topics that focus on definitions of the world of investments. These can range from what are central banks, macroeconomic indicators, funded accounts o how a specific industry works. During the previous week, we witnessed one of the most anticipated events in the world of investments; the quadruple witching hour. And how it fits perfectly into the theme of investment training articles, today we are going to talk about what quadruple witching hours are.
What is the quadruple witching hour?
Let's start this investment training by first defining what the quadruple witching hour is. It is an event that happens four times a year, specifically during the last hour of trading on the third Friday of the months of March, June, September and December. It is on these days that the expirations of futures contracts on stock market indices, futures contracts on shares, options on indexes and options on shares intersect at different times. These days are when it is decided whether to let current contracts expire or instead renew them for the next expiration date, better known as a “roll over.”
At what time do the witching hours occur?⌚
The expirations of futures and options contracts do not happen at the same time, they mainly depend on the asset followed by the underlying asset that expires. In this way, they follow a chronological order at different times as follows:
- -The Eurostoxx is the first to start the quadruple witching hour, where its contracts expire at mid-morning around 12:00 (on options and futures contracts).
- -The second is the German DAX, which expires its futures and options contracts at 13.00:XNUMX p.m.
- -Next, the Americans arrive at 15:30 p.m. watching their contracts on the main American indices (Dow Jones 30, S&P 500, the Nasdaq 100 and the Russell 2000) expire.
- -Next we return to the old continent, where the futures contracts for the CAC 40 and AEX 25 indices (French and Dutch indices respectively) expire at 16:00 p.m.
- -Finally, we Spaniards arrived (waking up from a nap) with the futures and options contracts expiring at 16:45 p.m.
Is the quadruple witching hour the same in all regions?
Certainly, the quadruple witching hour is not the same in all regions. Mainly because, as we have seen in the previous paragraph of this investment training, expiration times vary depending on the index that your options and futures contracts are going to expire. In turn, in the United States it is not called quadruple witching hour, but rather triple witching hour. This is because index futures contracts (not stock futures contracts) and index and stock options expire in the United States. It also has another name apart from the triple witching hour; Americans call it Freaky Friday. Additionally, in the Spanish stock market we have monthly maturities, so the quadruple witching hour does not end up affecting the Spanish stock market in the same way.
Why does the quadruple witching hour have so much weight?
This is an easy question to answer and one that we will explain in the next paragraph. The quadruple witching hour has a lot of weight in the investment world since the quarterly expiration of futures and options contracts considerably increases volatility as investors must decide whether to let their positions expire or, instead, roll them over to the next period. expiration, what we had previously defined as a “roll over”. Therefore, during these hours is when a considerable volume of sales and purchases occurs, which in turn can define the direction of the markets during the following quarter.
How can we operate the quadruple witching hour?
Mainly we warn that operating during the quadruple witching hour is not recommended for traders with little experience, since these are times where volatility reaches quite high levels. Therefore, the use of stop loss orders is going to be one of the first things to take into account. Normally, prior to the expiration of the contracts, the market tends to move upwards and then fall when said contracts have just expired. Let's look at an example of the last quadruple witching hour that we experienced recently, on Friday, December 16.
Contrary to what we are used to conceiving during the dark hours, the Eurostoxx prior to the expiration of futures and options contracts was falling. When the contracts expired at 12:00 (horizontal yellow line) the index turned around, giving way to an upward movement that is still ongoing. It should be noted that the current situation in the financial markets does not guarantee that this upward movement will end up evoking an upward trend. From my point of view, the old continent must still suffer a little more given the delay in the application of measures to stop the advance of inflation throughout this year 2022.
Conclusions from this investment training on the quadruple witching hour.
Now that we have finished this investment training on the quadruple witching hour, let's review the most important points. We have learned that this event happens four times a year, during the third Friday of the month of March, June, September and December. We have seen it happen at different times, as it is based on the expiration of index and stock futures and options contracts. At the same time, we have seen that Americans differ a little from the rest (as always), given that in the United States it is called the triple witching hour or “freaky Friday.” We have also analyzed how the last quadruple witching hour of this year has happened, where curiously it has not followed the pattern of previous increases and subsequent decreases. To finish this article, we mention the following quadruple witching hours for the year 2023: they will happen on Fridays, March 17, June 16, September 15 and December 15.