Understanding the Triple Witching Hour: What Traders Need to Know

The "triple witching hour" refers to the last hour of the trading session on the third Friday in March, June, September and December. This is the last hour of trading before the expiration of three different security types: stock index futures, stock index options and individual stock options. Despite the fact that actual expiration takes place the following day, you cannot trade any of these instruments after the market closes, so when all of them are in play, it is called triple witching.

The effect of triple witching is that trading volume tends to spike in futures and the options on them. You will also see a spike in the trading volume of particularly liquid stocks. With this spike, volatility increases. Largely driving the additional volume and volatility is the fact that many institutional investors have large offsetting positions. Many are used as hedges for other positions. When all of these investors begin to unwind their positions, you see huge volume and often strange price action. If you are holding positions on a triple witching day, the safest approach is to delay making any trading decisions until the following day. The abnormalities have a tendency to reverse at the opening on the following Monday.