Thursday, September 17, 2009

Quadruple Witching

Today, 17th Sep 2009 is one of the quadruple witching days of the year (Applies to Walls Street). I came across this term 'quadruple witching' in an article from the Straits Times and decided to research on what this is. Below is the explanation of the quadruple witching: Extracted from Here

NEW YORK — For the unsuspecting investor, quadruple witching can be just as scary as it sounds.

The oddly named phenomenon, which happens on Wall Street four times a year — including Friday — involves the expiration of several types of futures contracts on the same day. Generally only the pros have to deal with it, but even everyday investors who don’t wade deep into the market’s intricacies can feel whipsawed by heavy volume and bouncy trading that often results.

For many investors planning to make changes to their stock holdings, the best move might be to mark the days on a calendar and plan to sit on the sidelines. It’s easy to mistake the big moves that can occur for something more meaningful than what they really are — in some cases, nothing more than traders dotting an I or crossing a T on certain types of investments.

Here are some questions and answers about quadruple witching and what investors should know.

Q: What is quadruple witching?

A: It refers to the simultaneous expiration of four types of options and futures contracts. The deadline forces traders to tie up loose ends in contracts they hold. The “witching hour” is what traders sometimes call the final stretch of such a day, before the closing bell — a period that can see particularly heavy volume.

Q: When does it occur?

A: It takes place just before the end of each quarter, on the third Friday of March, June, September and December.

Q: What effect does it normally have?

A: The market usually manages to advance, at least in the short term.

Curtis Teberg, portfolio manager at the Teberg Fund and a market historian, said the moves aren’t significant to a long-term investor. But knowing that stocks tend to rise on this day, he said he had made a list of stocks he wanted to sell.

“If there are some things that I want to sell I know historically today is a much better day,” he said.

Q: What tends to happen in the days that follow?

A: It’s not unusual for the market to fall. Teberg noted that the Dow Jones industrial average has fallen in the week after the June quadruple witching in 16 of the last 18 years.

Q: Why does it sometimes wreak havoc on the market?

A: Traders are forced to step in and buy and sell stocks in order to wrap up the futures and options contracts. That can lead to huge volume, particularly in the first and final hour of the day. And the higher the trading volume, the more stocks can move up and down.

Q: What should everyday investors keep in mind?

A: Analysts say it’s smart to make note of the day before making a trading decision.

“We try not to make investment decisions on these days,” said David Chalupnik, head of equities at First American Funds. “We typically just back off.” He noted that the moves in stocks related to quadruple witching tend to fade within a day or two.

My Opinion

I feel that this might not affect the Asian markets as much as compared to the past. This is because I noticed, in recent months, the Asian markets do not really take cues from the closing of the Dow Jones. Instead, the Dow Jones is taking cues from the closing prices of the Asian markets.


PanzerGrenadier said...

Here’s wishing you a happy hari Raya Puasa holiday and a good long weekend catching up with loved ones, family and for some (sleep!).

Be well and prosper on your journey towards financial freedom.


I have heard so many times Witching hour.