Friday, September 17, 2021 is the 3rd Friday in September. But, it is not only the 3rd Friday of this month. Today is also the third Friday of the final month of the third quarter Q3. This observance only means that the week will close out in Quarterly Witching or Quadruple Witching.
Now, before I delve into details on Quad Witching, I must first explain to you what the “Witching Hour” is and how it impacts volatility, as well as trading behavior, across asset classes, and in particular, the major stock indices. The witching hour is the last hour of trading on the third Friday of each month, when stock options and future derivative contracts expire at the same time. This period is usually preceded by a softening of market volatility for most of the US Morning, followed by a surge in volume & volatility, in the late US Afternoon, as investors rush to close out their contracts before expiry, and before the close of the week.
So, what is Quadruple Witching (Quad Witching for short) and what impact will it have on financial markets? Well, Quad Witching hour is when there is the expiration of four(4) different derivatives: stock index options, stock index futures, stock options, and equity futures. You will usually see traders “squaring up” their positions during the last hour of trading, which is around 3pm to 4pm EDT. So, at expiration time, some of these options will be “in-the-money“, and some will be “out-the-money“. So, trading activity within these major securities & indices become very active close to the closeout or roll-over of these positions before they expire.
Quad Witching Days exhibit heavy trading volume, in part, due to the off-setting of existing futures and option contracts that are set to expire, but are profitable. When these contracts expire at witching hour, and specifically during today’s quadruple witching hour, you will witness a noticeable pickup in volatility, as all of these positions are being moved around to secure profits.
So, you may be wondering, what does this mean for forex traders in the currency market?
Well, as a forex trader, you need to be aware of heightened volatility around that time, and minutes before witching hour, so you can account for any change in intra-day market dynamics and mitigate risks if you’re within any active positions/trades.
I hope this general explanation provided you with a clear overview of what you can expect later in the US afternoon, before the week’s close. We offer further training to our private trading community, with additional strategies & market insight on how to utilize witching hour to obtain a quick profit before the weekly close in financial markets, specifically the forex market. If you would like to read more details about the benefits of joining our trading community, then you can visit the website below.
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Marvin Perry has been an active trader within the Forex market since 2010. He attended the University of Illinois in Urbana/Champaign, and graduated in 2002 with a double major in Cell and Structural Biology and Chemistry. He currently serves as an FX instructor & Quantitative Analyst for the Forex Anatomy Private Trading Community called "The Lab", where he conducts live weekly trading webinars & instruction on Fundamental Analysis & Inter-Market Interpretations of dynamic asset classes and their influence on currencies.