What is 'Triple Witching' and how does it impact markets?
What's the story
Wall Street, the nerve center of global finance, has witnessed a week of recovery after a difficult four-week period.
The previous downturn had resulted in an estimated loss of nearly $5 trillion in investor wealth.
However, the sustainability of this recovery is being tested as the indices find it difficult to hold on to their high points.
The true test of this resilience will be seen today when Wall Street confronts the quarterly "Triple Witching" event.
Event details
Triple witching: An explanation
"Triple Witching," happens on the third Friday of March, June, September, and December.
It's an event when index futures, index options, and stock options contracts all expire at once.
Once called Quadruple Witching with the inclusion of single-stock options expiration, the term has been removed after their discontinuation in 2020.
The event usually plays out during the last hour of trading when contracts expire.
Impact
How does it affect stock prices?
During such events, traders either adjust or close their positions in a particular stock or index option, which may result in unusual price movements.
Stocks with lower market capitalization and high derivative volumes may witness more pronounced changes during such events.
Today's Triple Witching is especially important as market sentiment on Wall Street remains fragile, and traders may try to use this fledgling recovery to exit their positions.
Previous occurrence
What happened last time?
The last instance of the triple witching event was in December 2024, when benchmark indices ended higher.
This indicates that despite the possibility of bizarre price movements, the market can also react positively to this event.
The next occurrences of this phenomenon for 2025 are scheduled for June 20, September 19, and December 19, giving more chances for a major market activity.