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Saturday, 12/20/2008 2:43:26 AM

Saturday, December 20, 2008 2:43:26 AM

Post# of 72979
Quadruple Witching
Definition:
The third Friday of March, June, September and December when Index Futures, Options on Index Futures, Single Stock Futures and Stock Options expire together.
The last hour of these trading days, from 3:00 to 4:00 p.m. EST, is referred to as the quadruple witching hour.
Quadruple Witching days is also known as Quad Witch.

How Does Quadruple Witching Occur?
Quadruple Witching occurs as 4 different types of derivative instruments expire on a single day. In the US market, stock options expire every third Friday of the month while single stock futures, options on index futures and certain index futures expire every third Friday of the quarter. The combined expiration of these four derivative instruments creates the Quadruple Witching day. Quadruple Witching only begun after 2001. Prior to the trading of Single Stock Futures in 2001, there was only Triple Witching where stock options, index futures and options on index futures expire on the third Friday of every quarterly month.

What Effects Does Quadruple Witching Have?
On quadruple witching days, and especially during quadruple witching hours, many investors attempt to unwind their positions in their futures and options contracts before the contracts expire. This activity frequently includes repurchasing contracts and closing out other positions meant to hedge against these contracts.
Due to the combined effects of exercise, delivery, hedging, arbitrage as well as speculative options trading and futures trading activity during Quadruple Witching days, the most obvious effect is a dramatic increase in trading volume. In fact, it has been documented that in 2007, both stock and options trading volume during Quadruple Witching days rose by about 55% to 60% more than the daily average for the year. Even though there might be increased amount of volatility in certain stocks during Quadruple Witching, the overall stock market action does not look significantly different from a normal non Quadruple Witching day. Extrinsic value of further month options may be slightly higher than usual on the Thursday prior to Quadruple witching and on Quadruple witching Friday itself due to the increased amount of trading. Due to the increased intraday volatility, options traders holding longer term options positions using trailing stop loss or contingent orders may also experience unnecessary stop outs.


My posting is for my own entertainment, do your own DD before pushing your buy/call butto

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