Friday 18 September 2020 was a special day, investors know well the meaning of the last Friday that I will go to explain, for those who do not know this question will be asked this question what is the day of the Triple witching day and how it impacts the markets?
Triple witching’s days are 4 during the year that occur on the third Friday in the last month of each quarter.
- 3° Friday March
- 3° Friday June
- 3° Friday September
- 3° Friday December
On financial markets, the most important Fridays of triple witching are those of June and December (6 months) because they are a bit watershed, where some trends start or end. In fact, institutional investors, hedge funds, big banks as they operate with the underlyings (options/futures) on the June/December maturities to usually make portfolio hedges.
Triple Witching’s day friday represents the expiration or rollover of derivative financial instruments such as options and futures, for those who do not know them I recommend to study or not to invest in those specific dates.
Triple witching’s day is characterized by a sharp increase in volatility and volumes because many professional operators have important “technical deadlines” that determine the rollover of their positions, in practice renew the futures contract at a future maturity.
On the trading book you will see that there is a lot of pressure at Bid/Ask level, this is given that strong hands have interests on their positions depending on whether they are long or short.
I open a parenthesis, institutional investors are options sellers because as the contract says they cash in the premium and I add that on this day it is essential to look at the open interest (the sum of all long and short positions open).
Some of you (from the emails I seem receive to do so) operating in the derivatives world will know that it’s not like having a stock or bond in your portfolio, because options/futures have precise maturities.
Since the situation is quite complicated given the increase in volatility and growth in trading volumes I recommend to be very careful on the day of Triple witching because the market is very sensitive and traders are usually nervous.
Expiration of the following derivatives at the same time:
- Futures on Index
- Option on stocks
- Option on index
- Futures Eurostoxx 50 time 12
- Futures Ftse Mib time 9
- Futures a Wall Street time 15:30 (european time)
- Futures Dax time 13 (european time)