Quad Witching: What to Know and How to Trade During it

Here’s a fun fact about quad witching, it is said some traders will wear a witch hat on quad witching days in hopes to increase their luck in the stock market.

Key Takeaways:

• Quad witching is a very volatile trading day.
• Quad witching happens four times a year on the third Friday.
• New traders should avoid quad witching day to avoid blowing up their accounts.

What is Quad Witching, Exactly?

Quad witching is a day when stock index futures and all options contracts expire at the same time.

Quad witching happens four times out of the year – March, June, September, and December – and it happens on the third Friday also.

During quad witching, the stock market has an increase of trading volume, thus making the stock market more volatile.

Pros and Cons

Pros

• Increased liquidity in the stock market.
• Increased volatility.

Cons

• Increased volatility.
• Higher implied volatility or the bid-ask spreads are higher.
• Riskier and complicated trading strategies.

Overall, quad witching can provide amazing opportunity due to the higher liquidity and volatility that it provides. But its strengths are also its weaknesses for a lot of traders and investors. For most traders who aren’t experience, it’s best to just sit this one out.

The Risks of Trading During Quad Witching

The biggest risk that comes with trading during quad witching is increased volatility, because it can come with very unexpected price action movement.

For example, since all the option contracts are about to expire, this may force large institutions to sell or buy the underlying stock in order to close their position. Institutions can have a huge impact on price action, which can be difficult to predict the price of a stock.

Is Quad Witching Right for You?

New traders who are not comfortable with higher levels of volatility may want to avoid trading during quad witching. Quad witching is meant for traders who have more experience, have high risk tolerance, and who have great risk management skill.

It’s important that you evaluate your own risk tolerance, and your risk management discipline.

Other Asked Questions

Can I Trade Options during Quad Witching?

Yes, you can trade options during quad witching day.

Should I Trade During Quad Witching Days?

If you’re a new trader, you may want to skip this day and focus on less volatile trading days. It’s a known fact that 90% of traders fail. With that said, a lot of new traders with no proper risk management may increase their chance of wiping out their portfolio.

What Impact does Quad Witching have on the Market?

Since quad witching is a day where all option contracts are expiring, it forces traders and investors to buy or sell the underlying stock in order to close their position, thus creating unpredictable price action movement.