“Witching hour” refers to the last hour of trading on days, normally the third Friday of the month, when there is a simultaneous expiry of options and futures in derivatives markets. Traders who don’t roll-over into a new contract are forced to cover their positions, which can lead to massive intra-day volatility in underlying markets.
“Quadruple witching” happens four times each year — on the third Friday of March, June, September, and December — when index futures, index options, stock futures, and stock options expire simultaneously. With that level of futures and options expiring, trading volume in equities usually spikes in the last hour.
Spot the June and September witching hours on the chart below.
Note that June had witching hours on Friday 15th and 22nd. Also note that there was not a lot of price movement despite the heavy trading volumes. That’s not to say that witching hour is incapable of disrupting an already unstable market but it’s unlikely to have a long-term impact if conditions are settled.
After the liquidity squeeze earlier this week, it’s important to keep an eye on this.
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.