This quarterly occurrence, known as triple witching, simply refers to three different derivative contracts expiring at the same time.
Triple witching is a financial word that sounds scary. This is a day when three types of options and derivatives contracts expire.
Only once every three months, huge institutional traders roll over futures contracts to free up capital, which can lead to dramatic fluctuations in volatility.
Doing so increases volume by up to 50% in the last hour of trading, but individual investors shouldn't be alarmed. Some may even profit from this instability.
These are bets made on the movement of a stock price at a later time. They are not an investment in a firm like stocks, but rather the right to purchase or sell shares of a corporation at a later date.
The U.S. stock market's witching hour is 3–4 pm EST, before the closing bell. In folklore, "witching hour" is 3–4 am.
It was seen as a time when spirits were most powerful. In the Middle Ages, the Catholic Church even forbade people from going outside in order to avoid being caught up in the mayhem.
When stock options, index options, and index futures contracts expire, the market is busy. In September 2021, $3.4 trillion in equity options expired during Triple Witching.
Investors should be aware of what happens on triple witching days and know that market volume is higher. Investors shouldn't be swayed by short-term price movements.