Triple/Quad Witching Day - YouTube

what's going on everyone good evening  we're going to talk about triple witching  

because it's very relevant it's actually  tomorrow december 17th is the last one  

of the year this happens once per quarter  we're gonna get into what this is all about  

what it will do and how it affects the stock  market typically look it's the moon when moon

what is triple witching day options and  derivatives traders know this phenomenon well  

because it's the day when three different  types of contracts expire it happens only  

once per quarter and can cause wild swings in  volatility as large institutional traders roll  

over futures contracts to free up cash doing so  creates a ton of increased volume sometimes 50  

higher than average especially in  the last trading hour of the day  

only one-third of the time so historically  speaking we see increased volatility and volume  

on average about one-third of the time in  fact some might even view this volatility as  

making opportunity like i do now which  three types of derivative contracts expire  

tomorrow on triple witching day we're looking  at index options index futures and stock options  

now stock options these are contracts taken out  on the direction of a stock price at a future  

date unlike stocks they're not an investment in  a company rather they're the right to buy or sell  

shares of the company at a later time frame  calls let you buy stock shares at a set price  

known as the strike price on or before the  expiration date that you get to choose based  

on the available options puts give you the right  to sell shares and you're obviously you're betting  

on a stock's decline if purchasing puts now  index options these are futures contracts on a  

stock index such as the s p 500 these options  are settled in cash index futures these  

are futures contracts on equity indexes  these contracts are also settled in cash

so upcoming triple witching dates for the  remainder of this year and next year we  

have december 17th 2021 march 18 2022 june 17  2022 september 16 2022 and friday december 16  

2022 now what is the witching hour well in the  u.s stock market the last hour of the trading  

day before the closing bell sees the most trading  activity so the witching hour is from 3 to 4 pm  

eastern and folklore the witching hour actually  happens in the dead of night from 3 to 4 a.m often  

times when i'm awake it was known as a time when  spirits reached the height of their powers during  

the middle ages the catholic church even banned  people from venturing outside during this time so  

as not to get caught up in the chaos so you take  that logic and today such ideas aren't taken any  

more seriously than mere superstition but triple  witching can cause chaos amongst indexed investors  

if they are not aware of what is happening well  so what happens on triple watching day as one  

could imagine a lot of trading activity happens  in the market when these three stock options index  

options and index futures all expire we're taking  a lot of money basically during triple witching  

and basically in september 2021 the amount  of money we were looking at there was around  

3.4 trillion of equity options that expired now  should they roll their positions or close them out  

and if so by how much are they  going to adjust how will they adjust  

this is what generates the increased  trading activity is everyone is trying to  

speculate what they're going to do with  their decisions with their positions roll  

them sell them close them out they have so many  options literally no pun intended this is what  

generates the increased trading activity in the  large trades especially from offsetting trades  

can cause temporary price distortions at the same  instant that the derivatives contracts expire  

the anticipatory hedges that traders have  placed become unnecessary and so traders  

also seek to close these hedges and the  offsetting trades result in increased volume  

these large volume increases can in turn cause  price swing or volatility in the underlying assets

so triple witching itself does not move  the stock market obviously it's just  

uh it creates increase it creates increased  volume in the same way the expiration of the  

options and futures contracts don't  necessarily result in volatility  

that's actually caused by the actions that  the traders take based on the temporary  

price fluctuations of their underlying assets  which can be moved due to the increased volume

so when this happens arbitrages try to take  advantage often making trades that are completed  

in mere seconds an arbitrager is a trader who  looks for price inefficiencies in a security and  

then seeks to make a profit by buying and selling  it simultaneously i know sounds like some crime

now is triple witching bullets you're bearish  um historically speaking triple witching is not  

always an up day or a down day so to speak it  does not signify a trend basically typically it  

neither moves the market to significantly higher  nor lower it simply adds temporary increase to  

volume and liquidity however it's important to  note that market volumes also tend to be higher  

on index rebalancing days as well as during and  after broader macroeconomic news events so when  

taken in tandem with triple witching these events  can cause big moves in the market so if there's  

any macroeconomic news that happens to service  tomorrow it could cause some chaos but however  

the real question remains to be asked because  it's never been experienced before what happens  

on triple witching day when the repo market sits  at a historic 1.654 trillion dollars in demand and  

the inflation rate is at an all-time high i guess  we'll have to ask again tomorrow see you then